The Letter of Undertaking from the Penang State Government constitutes a security under the Stamp Act, thus disqualifying the loan from stamp duty remission.

JUDGMENT

Azizah Nawawi JCA:

Introduction

[1] This is an appeal against the decision of the learned High Court Judge delivered on 30 November 2021 allowing the appeal by the respondent, Penang State Development Corporation pursuant to s 39(1) of the Stamp Act 1949 ('the Stamp Act').

The Salient Facts

[2] The respondent is a corporation established under the Incorporation (State Legislatures Competency) Act 1962 and the Penang Development Corporation Enactment 1971 (PDC Enactment). The respondent is a State entity.

[3] Section 15C of the PDC Enactment stipulates that the respondent cannot apply for any loans except with prior written approval from the Minister of Finance (MOF), and the MOF may impose any conditions deemed necessary on such approval.

[4] According to the MOF Directive dated 19 November 1999 issued under para 14(1)(d) of the Second Schedule of the Incorporation (State Legislatures Competency) Act 1962, the State Government must provide an undertaking that it will fully guarantee the loan obtained by a State entity.

[5] The respondent had applied for and had obtained an Islamic Tawarruq banking facility of RM100,000,000.00 ("Loan") from Bank Islam Malaysia Berhad ("Bank") via a Letter of Offer dated 6 May 2019. In the said letter of offer, it is clearly specified that the offer is subject to the terms and conditions, including:

"Security

the security provided by the Security Party to the Bank in respect of the obligations and liabilities of the Customer (including but not limited to the payment of the Indebtedness) under and in connection with the Facility and particularized in s 7 of the First Schedule and any other security for the time being or from time to time constituting security for the obligations and liabilities (including but not to limited to the payment of the indebtedness) of the Customer under and in connection with the facility.

Condition Precedents:

A. The Customer shall have executed and/or submitted the following:

...

6) Letter of Undertaking from Penang State Government via Jabatan Kewangan Negeri to Ministry of Finance that the State Government is to be accountable for the RC-I facility of RM100 million with Bank Islam."

[6] Additionally, in the Murabahah Financing Agreement, there is also a specific requirement to provide a guarantee to secure the said Loan, to be provided by a third party, namely the Penang State Government.

[7] Pursuant to the terms of the Letter of Offer issued by the Bank, the respondent is required to submit a Letter of Undertaking ("LOU") from the Penang State Government to the MOF stating that the State Government will be responsible for the financing facility offered by the Bank.

[8] On 5 July 2019, the Penang State Government through the State Government Executive Council Meeting ("Exco Meeting") Number 20/2019, which was ratified on 12 July 2019, had agreed to approve the proposal of the loan facility amounting to RM100 million from the Bank to the respondent.

[9] Following that, a LOU dated 9 August 2019 was sent by the Penang State Finance Department to the MOF stating that the State Government pledges to fully guarantee the loan facility of RM100 million from the Bank:

"Ketua Setiausaha Perbendaharaan

Kementerian Kewangan Malaysia

Bahagian Pengurusan Strategik Badan Berkanun

Aras 4, Blok Tengah

Kompleks Kementerian Kewangan No 5,

Persiaran Perdana, Presint 2

62594 PUTRAJAYA

(u.p: Encik Mohd Sakeri bin Abdul Kadir)

Tuan

SURAT AKUJANJI KE ATAS PERMOHONAN MENGENAI KEMUDAHAN PINJAMAN KREDIT TIDAR BERJUMLAH RM100.00 JUTA DARI BANK ISLAM MALAYSIA BHD OLEH PERBADANAN PEMBANGUNAN PULAU PINANG (PDC)

Dengan segala hormatnya saya merujuk kepada perkara di atas.

2. Adalah dimaklumkan bahawa Kerajaan Negeri Pulau Pinang, melalui Majlis Mesyuarat Kerajaan Negeri (MMK) Bilangan 20/2019 pada 5 Julai 2019 yang disahkan pada 12 Julai 2019 telah bersetuju meluluskan cadangan mengenai Kemudahan Pembiayaan Kredit Tidar berjumlah RM100.00 Juta daripada Bank Islam Malaysia Bhd oleh Perbadanan Pembangunan P