JUDGMENTBY: EDGAR JOSEPH FCJ

(delivering judgment of the court):

Preliminary

This appeal is from an order of the High Court, Shah Alam, allowing an application by way of Original Summons by Arab-Malaysian Finance Bhd, the respondent herein (the Lender), for an order under s 256 of the National Land Code 1965 (the Code) for the sale of certain land comprised in LO No 28, Jalan 223, Section 20, QT(R) 6300 Bandar Petaling Jaya (the Land) which was the subject matter of a charge registered in its favour by Lori (M) Bhd, the appellant herein (the Borrower Company) given by way of security for a loan of RM 4.3 million (the Charge). The judge had, of course, made the order aforesaid because he was satisfied that the Borrower Company had failed to satisfy him of the existence of cause to the contrary as required by s 256(3) of the Code.

The Background Facts

The undisputed facts were that in the midst of a takeover battle, the directors of the Borrower Company had on 19 November 1991 obtained an order of the High Court appointing an Interim Receiver to protect the Borrower Companys assets and it is he who resisted the Originating Summons to enforce the Charge, upon the ground that the loan aforesaid and the charge were granted in contravention of s 67 of the Companies Act 1965 (the Act), read with s 24 of the Contracts Act 1950. In particular, the case for the Borrower Company was that the loan aforesaid had been granted in the nature of financial assistance for the purpose of, and in connection with, the purchase by Technivest Sdn Bhd (Technivest) from Majlis Amanah Rakyat (MARA), of its shares in the Borrower Company.

Of the Borrower Companys entire paid up capital of 10,633,920 shares, MARA owned as much as 10,475,500 shares (the shares) or, in other words, approximately 99% of the Borrower Companys entire paid up capital. The 1 November 1989 saw MARA appointing Technivest to manage the Borrower Company.

The contemporary correspondence showed that MARA had, by a letter dated 21 September 1989, offered to sell the shares to Technivest, pursuant to a proposal by Technivests Chairman Dato Bashah Nordin that the Borrower Company be privatised. Technivest responded by letter dated 28 September 1989 accepting the offer.

To acquire the shares, Technivest needed money, so it applied by letter dated 30 October 1989, signed by its Chairman Dato Bashah Nordin, addressed to the Lender for a loan facility to complete the purchase. The Lender replied by letter dated 30 November 1989 to the Borrower Company offering a term loan of RM4.3 million (the first offer). The Borrower Company had stated to the Lender that the purpose of the loan was to pay MARA for the settlement of Lori Malaysia Bhds liabilities with MARA and its subsidiaries. As for the security for the loan, there was to be a charge over the Land, a debenture over all the present and future assets of the Borrower Company and Technivest and Joint and several guarantees from the Borrower Companys Directors Dato Bashah Nordin, Ismail Affandi, Mustapha Hamat, Omar Abu Bakar and a corporate guarantee from Technivest.

Then, on 1 December 1989, a formal sale and purchase agreement (the Sale and Purchase Agreement) was prepared by the legal firm of Messrs Abdullah and Zainuddin on behalf of MARA and duly executed by the authorised signatories in MARA and Technivest. It provided that the purchase price was to be RM130,000. It further provided by clauses 5.2 and 5.3 that Technivest would pay or cause to be paid to MARA, the sum of RM4,329,320 in full and final settlement of loans which MARA had made to the Borrower Company together with the sum of RM 117,000, being the balance purchase price for the shares, whereupon MARA was to hand over the certificates and transfers for the shares and letters of resignation of their nominated directors on the Board of the Borrower Company.

Next, on 11 January 1990, the Managing Director of the Borrower Company Encik Ismail Affandi wrote to the L