Salleh Abas LP:

The issue in this appeal is whether a guarantee given by the respondents on 14 October 1975 to the appellants is valid. The respondents are a co-operative society registered under the Co-operative Societies Act 1948 - Revised 1983 as Act 287 - (the Act). By the said guarantee the respondents agreed to indemnify the appellants up to a sum of RM500,000 in the event of a certain company called Syarikat Pembinaan Azlin Sdn. Bhd. (Azlin) failing to perform its contract with the appellants. This contract was signed on 29 September 1975, i.e., about a fortnight before the guarantee.

Azlin failed to perform the contract, whereupon the appellants terminated the said contract and thereafter sued the respondents upon the guarantee. Razak J in the Court below held that the guarantee was not valid because the respondents' by-laws does not permit them to give any guarantee in favour of a non-member. Both the appellants and Azlin were not members of the respondents.

It is true that the by-law of the respondents does not allow the giving of this guarantee, but the by-law should not be the basis of determining the validity or otherwise of this guarantee since it is merely a rule of conduct which governs the internal government of the respondents. The guarantee in this case concerns a relationship between the respondents and non-members, and as such should be governed by the statute under which the respondents were incorporated. The question is, therefore, this: Are the respondents empowered by the Act and or the Rules made under the Act to give such guarantee? If they are, the guarantee is valid, and if they are not, the guarantee is not valid.

Unlike a natural person whose position in law is that he or she can do anything unless prohibited or restricted by law, a co-operative society (of which the appellants being registered under s. 7 of the Act are one) being a statutory corporation is not allowed to do anything unless authorized by the statute under which it is incorporated. In other words, the principle of law regarding powers applicable to a co-operative is the very reverse of that which is applicable to a natural person. The principle is succinctly stated in 9 Halsbury's Laws of England, 4th Edn., para. 1333, at p. 779, as follows;

1333. Statutory corporation. The powers of a corporation created by statute are limited and circumscribed by the statutes which regulate it, and extend no further than is expressly stated therein, or is necessarily and properly required for carrying into effect the purposes of its incorporation, or may be fairly regarded as incidental to, or consequential upon, those things which the legislature has authorized. What the statute does not expressly or impliedly authorize is to be taken to be prohibited.

The same principle was enunciated by Abdoolcader J (as he then was) in PP v. Datuk Haji Harun bin Haji Idris [1976] . It is, therefore, clear that the powers of a statutory corporation like the respondents are (i) those expressly provided in the statute, and (ii) those which may reasonably be implied as necessary and proper for the purpose of carrying out the object of its incorporation, and the limit of its implied power is the object of its incorporation.

There are three provisions of the Act which should be considered in connection with this guarantee. These are ss. 30, 31 and 32, which for the sake of easy reference are set out as follows:

30. (1) A registered society may make loans:

(a) to its members;

(b) to its employees;

(c) to its subsidiaries, or

(d) to another registered society which had obtained the approval of the Registrar-General as prescribed by the rules;

(2) (deleted by Act A334).

(3) The Minister may, by general or special order, prohibit or restrict the lending of money on a mortgage or charge of any description of immovable property by any registered society, or class of registered societies;

31. A registered society shall receive deposits and loans from persons who