JUDGMENT

KN Segara JCA:

[1] This is an appeal against the decision of the learned Judge High Court at Kuala Lumpur given on 26 January 2005 after a full trial.

[2] The 1st appellant is SamaWorld Asia Sdn Bhd (hereinafter referred to as the 1st defendant). The 2nd appellant is Lim Kut Sheong @ Lim Tuck Fatt (hereinafter referred to as the 2nd defendant). The respondent is RHB Bank Berhad, previously known as DCB Berhad (hereinafter referred to as the plaintiff).

[3] The plaintiff bank claimed against the 1st and 2nd defendants:

(a) the sum of RM3,645,154.48;

(b) interest on the principal of RM3,000,000 at the rate of 2.0% per annum above the plaintiff's costs of funds calculated on a daily basis from 1 October 1996 to the date of full payment;

(c) additional default interest on the outstanding interest charged on the sum of RM3,000,000 at the rate of 3.0% per annum over and above the plaintiff's costs of funds calculated on a daily basis with monthly rests from 1 October 1996 to date of full payment.

[4] The 1st defendant was at all material times a customer of Rakyat Merchant Bankers Berhad (RMBB). On or about 4 November 1992 RMBB granted a RM3.0 million short term loan facility to the 1st defendant. Pursuant to the granting of the said loan facility the 1st defendant executed a Short Term Loan Facility Agreement with RMBB on or about 12 November 1992. By a memorandum of deposit of shares, dated 12 November 1992, the 1st defendant deposited and charged by way of a first fixed charge 10.0 million shares of SamaWorld (Malaysia) Sdn Bhd in favour of RMBB to secure the repayment by the 1st defendant to RMBB, on demand, of the debt outstanding under the said loan facility, together with other charges arising out of or incidental to the taking or realization of the said security for the said loan facility.

[5] The 2nd defendant was a director of the 1st defendant. By a written and continuing guarantee dated 12 November 1992 executed between the 2nd defendant, the 1st defendant and RMBB, the 2nd defendant unconditionally and irrevocably guaranteed the repayment by the 1st defendant of the whole of the said loan together with interest thereon and all costs charges and all other sums payable by the 1st defendant under the provisions of the said loan agreement.

[6] The 1st defendant agreed, inter alia, under section 6.1 of the said loan agreement, to repay to RMBB the amount of the principal and the prescribed interest thereon by one lump sum on or before the expiry of the three months from the date of the first drawdown of the said loan facility.

[7] The said loan facility was, pursuant to a written notice of drawdown, released on 16 November 1992 and became due for full settlement on 16 February 1993. On or about 13 June 1994 RMBB granted an extension of time for the repayment of the said loan facility up to 31 May 1995.

[8] Pursuant to the Banking and Financial Institutions Act 1989 and by order of court dated 7 November 1996 all interests, assets, rights remedies and liabilities of RMBB (previously vested into BSN Merchant Bank Berhad vide the order dated 22 July 1995) were further vested and transferred to the plaintiff as of 1 October 1996. It was also ordered that any accounts, agreements, contracts or instruments to which RMBB was a party shall have effect as from 1 October 1996 as if the plaintiff has been a party thereof instead of RMBB. As at 30 September 1996, the 1st defendant remained indebted to BSN Merchant Bank Berhad in the sum of RM3,645,154.48 vide the said short term loan facility originally granted by RMBB.

[9] BSN Merchant Bank Berhad had on 22 August 1996 issued a letter, through its solicitors, to the 1st defendant demanding payment of the sum of RM3,576,277.83 being the outstanding amount due and payable as at 31 July 1996, together with interest thereon, but the 1st defendant failed to make payment thereof.

[10] Pursuant to the provisions of section 14.1 of the said loan agreement, the plaintiff, through its s