Mah Weng Kwai JCA (delivering judgment of the court):

BRIEF FACTS

[1]In 1999, the appellant approved and disbursed term loan and overdraft facilities in the sum of RM400,000 to Malaysian Aerosols Manufacturer Sdn Bhd (‘Malaysian Aerosols’). In consideration thereof, a third party charge over a piece of property owned by Quickpack (M) Sdn Bhd (‘the fourth defendant’) was executed by the fourth defendant in favour of the appellant. The fourth defendant was wound up on 24 August 2001 and the official receiver was appointed the liquidator.

[2]The respondents and Singaravelu s/o Ratnnavelu (‘the first defendant’) were at all material times directors and shareholders of the fourth defendant while Amudah Devi d/o Maruthamuthu (‘the second defendant’) was a director of the fourth defendant. The first and second defendants were also the directors of Malaysian Aerosols.

[3]A directors’ resolution of the fourth defendant was purportedly passed on 3 April 1999 giving approval and authority to the directors of the fourth defendant to execute the relevant documents for the creation of the third party charge over its property as security for the banking facilities granted to Malaysian Aerosols.

[4]The third party charge in Form 16ANational Land Code was then executed by the first and the second defendants as the directors of the fourth defendant on 2 August 1999 and was registered with the Selangor Land Office on 9 August 1999.

THE RESPONDENTS’ POSITION

[5]The respondents deny having signed the directors’ resolution and plead that they were forged by the first and second defendants, the existence of which only came to their knowledge subsequently. The third party charge in favour of the appellant had been created without their knowledge, consent or approval in their capacity as directors and/or shareholders of the fourth defendant. The respondents’ case was supported by the absence/non-existence of any resolution on the third party charge duly certified by the company secretary kept in the books of the fourth defendant nor was there any entry or record of the resolution in the statutory books of the fourth defendant.

[6]Upon discovery the respondents filed a suit against the appellant and three others namely the first, second and fourth defendants for the following, inter alia, reliefs:

(a)a declaration that the purported signatures of the respondents as appearing on the directors’ resolution dated 3 April 1999 of the fourth defendant are of no legal effect thereby rendering the said resolution void and/or unlawful;

(b)a declaration that the third party charge dated 2 August 1999 vide Resolution No 6113/99, Jilid No 773, Folio 5, purportedly granted in favour of the appellant is void and/or unlawful.

THE APPELLANT’S POSITION

[7]The appellant’s position was that it relied mainly on the valid third party charge which was duly executed by the fourth defendant, although it was premised on an invalid directors’ resolution pursuant to the principle laid down in the case of Royal British Bank v Turquand (1856) 119 ER 474 (Turquand’s Rule) to wit, that a person contracting with a company and dealing in good faith may presume that acts performed within the company’s constitution and powers were duly performed and the person is not bound to inquire whether acts of internal management have been regularly complied with.

[8]The appellant also relied on s 20(1)Companies Act 1965Bumiputra Merchant Bankers Bhd v Supreme-QBE Insurance Bhd Public Bank Bhd v Metro Construction Sdn Bhd s 20(1)

DECISION OF THE HIGH COURT

[9]After a full trial in which the appellant elected not to call any witnesses and relied on its submission, the learned trial judge found as of fact that the signatures of the respondents on the directors’ resolution had been forged by the first and second defendants and as the resolution had not been signed by ajl the directors of the fourth defendant, the provisions of article 119 of the articles of association had not been complied with and accordingly the