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2009 MarsdenLR 1212
K ANANTHAM
KFH IJARAH HOUSE (M) SDN BHD – Appellant
Versus
LIGHT STYLE SDN BHD – Respondent
The legality of financial operations under BAFIA and the validity of Murabaha Sale Agreements were upheld, confirming no money lending violations occurred.
Headnote:(A) Banking and Financial Institutions Act (BAFIA) - The court reviewed the legality of the Petitioner's transactions under BAFIA, rejecting claims of illegal banking operations and compliance with Money Lenders Act. (Paras 7, 8)
(B) Murabaha Sale Agreements - The structure of such agreements was upheld as valid and not amounting to illicit money lending practices.
(C) Assignment of Debt - The court found no merit in the assertion that payments could only be made by franchisees to the exclusion of the Respondent.
Facts of the case:
The Petitioner sought to wind-up the Respondent due to an alleged genuine debt, opposed on grounds of illegality, invalid agreements, and assignment.
Findings of Court:
The court found in favor of the Petitioner, affirming prior rulings on the validity of the agreements and allowing the petition.
Issues: The primary issues were the legality of the Petitioner's business activities under BAFIA, the validity of the agreements, and the nature of debt assignment.
Ratio Decidendi: The court concluded that the Petitioner's operations did not constitute illegal banking, that the agreements were valid under applicable law, and that the debt was genuine.
Result: Petition to wind-up the Respondent is granted with the appointment of the Official Receiver as liquidator.
Enc. 1 is a petition to wind-up the Respondent. Even before this petition could be filed, the Respondent had sought an interim injunction to restrain the Petitioner from filing this petition. The Respondents' application for the injunction resulted in a judge of this High Court Rohana Yusuf J delivering a fairly lengthy judgment when she dismiss the application. In the course of her ladyship's judgment, she had occasion to deal with almost all of the issues relied by the Respondents in resisting this Petition. Accordingly, I do not propose in this judgment to set out in detail either the background facts or my reasoning for this decision.
Background Facts
The background facts are to be found in pages 536 and 537 of the reported case of Light Style Sdn. Bhd v. KFH Ijarah House (Malaysia) Sdn. Bhd ; [2009] 3 AMR 532.
Issues
The issues raised by the Respondent in opposing the Petition may be summarise as follows:
a) Illegality;
b) Invalidity of the Murabaha Sale Agreements, and
c) Assignment
Illegality
As regards illegality, Counsel for the Respondent contends that the Petitioner is a finance company offering both leasing and non leasing loan finance. For this reason, Counsel contends that the Petitioner is effectively undertaking 'banking business operation'. To undertake banking business in Malaysia, under BAFIA , you need to be licensed by Bank Negara Malaysia (BNM). The license held by the Petitioner only permits it to undertake leasing business. Implicit in the submission of Counsel is that the Al-Murabah revolving finance facilities extended by the Petitioner to the Respondent constitute banking business, which the Petitioner has no legal capacity to undertake in Malaysia and by reason whereof, the agreements are illegal. I have studied the reasoning behind the judgment of Rohana Yusuf J and agree with her that the Petitioner is not undertaking banking business. Accordingly, I reject the submission that the Petitioner has contravened any of the provision in BAFIA in its dealings with the Respondent.
Invalidity
The thrust of the submission of Counsel for the Respondent under this heading is that the structure of the Murabaha Sale Agreements effectively result in the Petitioner receiving a sum larger than the consideration paid by it to the vendor of the same goods upon the completion of the sale to the Respondent. According to Counsel for the Respondent, the difference in the consideration really amounts to interest. By reason thereof, Counsel for the Respondent contends that the Petitioner is involved in money lending business. To the extent that the Petitioner does not have money lending license and has, in any event, not complied with the provision of the Money Lenders Act , the Murabaha Sales Agreements are invalid in law. Again, I have studied the reasoning behind the judgment of Rohana Yusuf J in rejecting the Respondent's submissions on invalidity and agree with her that the Petitioner has not contravened the Money Lenders Act . Accordingly, I reject the submission of Counsel for the Respondent that the Petitioner has contravened the Money Lenders Act . I also wish to add that the structure of the Murabaha Sales Agreements is not materially different from the sale and lease back arrangements familiar in the field of leasing and such agreements have generally been held to be valid under English Law.
Assignment
The Respondent relies on the letters originating from it and addressed to its franchisees requiring them to make payment directly to the Petitioner as constituting an absolute assignment of the debt. Counsel for the Respondent contends that the effect of these documents in that the Petitioner has to look to the franchisees for payment to the exclusion of the Respondent. With respect, I do not find any merit in the submission. First, the Petitioner is not a signatory to this document. Secondly, by clause 5 of the Murabaha Sales Agreements, the Respondent is the party liable to pay the consi
