Mohd Radzi Abdul Hamid J:

GROUNDS OF JUDGMENT

MATTER BEFORE THIS COURT

[1]This is a decision at the end of a full trial pertaining to a claim for RM2,357,498.22 instituted by the Plaintiff against all Defendants arising from a Loan Agreement as well as a Guarantee and Indemnity Agreement both dated 30.6.2017 entered into between the Plaintiff and 2nd, 3rd and 4th Defendants and a Letter of Undertaking dated 20.3.2019 issued by the 1st Defendant to the Plaintiff.

[2]The Plaintiff and the 1^st Defendant each called 2 witnesses whilst the 3^rd and 4^th Defendants respectively called one witness each. The 2^nd Defendant had already been wound up and therefore was not part of the proceedings.

BACKGROUND FACTS

[3]The Plaintiff had granted the 2nd Defendant a loan (“Loan”) in the amount of RM3,000,000.00 pursuant to a Loan Agreement dated 30.6.2017 (“Loan Agreement”).

[4]The Loan is for a term of 36 months. Clause 5.1 and 5.2 of the Loan Agreement provide for the charging of interest at the rate of 7% per annum to be paid on a monthly basis, in the event of default or non-payment. In the event the 2^nd Defendant fails to pay the said interest or any sum due to the Plaintiff when they fall due, the 2nd Defendant shall pay a further interest at the rate of 3% above the 7% interest rate.

[5]As security for the Loan, the 3^rd and 4^th Defendants executed an Irrevocable and Unconditional Guarantee on 30.6.2017. At the same time, both the 3^rd and 4^th Defendants agreed to pledge their shares in the 2nd Defendant company to the Plaintiff via a Share Charge dated 30.6.2017.

[6]The Plaintiff claims that the Loan was part of a scheme for the Plaintiffs acquisition of majority shares and control of the 2nd Defendant. Such acquisition was subject to a legal due diligence on the 2^nd Defendant.

[7]However on 19.3.2019, the 2^nd Defendant informed the Plaintiff that they had been invited to enter into a joint partnership with the 1st Defendant whereby the 1st Defendant would acquire 80% shareholding in the 2^nd Defendant. To secure repayment of the Loan, the 2^nd Defendant informed the Plaintiff that it would obtain a letter of undertaking (“Letter of Undertaking”) from the 1^st Defendant to guarantee the repayment of the Loan. The said letter dated 20.3.2019 was subsequently received by the Plaintif.

[8]The Letter of Undertaking stated that:-

(i)the 1^st Defendant has agreed to acquire 80% shares in the 2^nd Defendant;

(ii)Such acquisition is together with all liabilities of the 2^nd Defendant including the Loan between the 2^nd Defendant and the Plaintiff; and

(iii)the 1 st Defendant guaranteed the repayment of the Loan in accordance with the repayment schedule.

[9]In consideration of the said Letter of Undertaking, the Plaintiff decided not to stand in the way of the proposed partnership and subsequently proceeded to enter into a Settlement Agreement dated 22.4.2019 with the 2^nd, 3^rd and 4^th Defendants whereby the following was agreed:

(i)the 2^nd, 3^rd and 4^th Defendant shall settle the Loan in accordance with the agreed payment schedule;

(ii)the Plaintiff shall release the Share Charge together with all the relevant security documents; and

(iii)in the event of default in the repayment of of the Loan or the occurrence of any event of default as defined in the Loan Agreement, the entire Loan shall become immediately due and payable.

[10]The 2nd Defendant only made a partial payment of RM750,000.00 out of RM 1,000,000.00 due under the first repayment of the schedule and continued to fail in making all other payments under the Settlement Agreement. The Plaintiff then issued, through its solicitors, a formal Notice of Demand dated 9.10.2019 against all Defendants demanding payment of RM2,337,010.58. No settlement was forthcoming and the Plaintiff filed the present suit.

ISSUES

[11]After considering the written submissions of respective parties and hearing arguments, this Court finds the issues that require determination are:-

(i)whether the Loan Agreement dated 30.6.2017 is illegal for b