Kanagendran A/L Narainasmy v Rekamacro Resources (M) Sdn. Bhd., 05-07-2010

• Judge: HASNAH BINTI DATO’ MOHAMMED HASHIM
• Judgment Date: 05 July 2010
• Court: High Court (Malaysia)
• Appellant: KANAGENDRAN A/L NARAINASMY
• Record Number: D5-28-102-2009
• Respondent: REKAMACRO RESOURCES (M) SDN. BHD.

IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR

(COMMERCIAL DIVISION)

SUIT NO: D5-28-102-2009

KANAGENDRAN A/L NARAINASMY

V

REKAMACRO RESOURCES (M) SDN. BHD.

GROUNDS OF JUDGMENT

Enclosure 10 is the Respondent’s Application for an Order that the winding up Petition be struck off under O 18 r. 19 of the Rules of the High Court 1980 and/or under the inherent jurisdiction of the Court. The Application is supported by an Affidavit affirmed on 13.5.2009.

The grounds for the Application:-

1. the Petitioner is not a creditor of the Respondent;

2. the Petitioner is not a contributory of the Respondent;

3. alternatively even as the contributory he has not satisfied the requirements of section 217 (2) (a) of the Companies Act as the shares in respect of which he is alleged to be a contributory have not been registered in his name for at least 6 months during the 18 months before the presentation of the Petition or the number of members of the Respondent is reduced to below 2.

Brief Facts

In his Petition the Petitioner stated that he is the beneficial owner under a Trust of 40% of the 200,000 shares and therefore he qualifies as Contributory under section 217(1) (c) of the Companies Act to present the Petition.

The Petitioner and his brother Logendran set up the Respondent Company Rekomacro Resources Sdn Bhd. The nominal capital of the Respondent Company is RM500, 000.00 divided into 500,000 shares of Rm1.00 each The amount of capital paid up or credited as paid up is RM500, 000.00.The main activities of the Respondent Company –

1. to deal , engage and to recruit members in participating in sales, marketing, promotion, distribution of goods, products, articles and/ or services relating in any type of business or products, and to promote or propose such methods of selling, procedures and measures as may be considered desirable or beneficial for all or any of the Company’s object.

2. import, export, manufacture, buy and sell of all kinds of health products.

3. carry on the business of general trader.

When the company was incorporated the Petitioner was in India. However, it was agreed that the mother of the brothers will hold the shares on behalf of the Petitioner. The enterprising brothers were also shareholders in three other related Companies i.e.

1. Reka Bioceramic

1. Brother - 193,000 shares

2. Petitioner - 193,000 shares

2) Reka Property Venture,

1. Brother - 920,000 shares

2. Petitioner - 920,000 shares

3) Reka Water Industries.

1. Brother - 85,000 shares

2. Petitioner -85,000 shares

The Respondent Company was doing well and the Petitioner did not demand for the transfer of the Shares into his name. However the Petitioner would attend meetings under a proxy of his mother. According to the Petitioner the brother, Logendran had always consulted him on many major Company’s decisions until early 2007.The Respondent Company was doing well from2002 -2004.

When the Petitioner came back from India his mother continued to be his Nominee whilst he took over as the Director in place of his mother in 2006. On 9.1.2006 by a Board Resolution the Petitioner became the Director of the Respondent Company. As a director the Petitioner had to execute a number of Bank Guarantees. The Petitioner at the same time had businesses in India and the Respondent Company was run by Logendran. According to the Petitioner when he came back from India he examined the Company’s account sometime in early 2007 and discovered a shortfall of RM300, 000.00.

Subsequently in 2007 differences arose between the brothers due to matrimonial dispute. The family and business relationship between the brothers turned sour .The Petitioner claimed he was denied access to the office and that Logendran appointed an additional Director.

According to the Petitioner Logendran had urged him in May 2007 to sell his shares in Reka Property Ventures Sdn. Bhd. and promised to pay RM920, 000.00.However there was some dispute as to the Purchase Price of the shares.

In 2008 there was two Board meeting. The first meeting was on 7.3.2008. The Petitioner attended the meeting and raised the following issues:-

1. The Petitioner protested against Sukumaran a/l Muthusamy, a director, signing the accounts and he also questioned the validity of Sukumaran ‘s appointment as a Director;

2. The sale of the Company’s property at RM1,326,732.00 when there was a higher offer;

3. Expenditures of the Company;

4. Queried on the expenditure as set out in the Minutes of the Board meeting on 7.3.2008.

The second Board meeting was on 16.6.2008.The Petitioner arrived late due to traffic jam and by the time he arrived the Board meeting was over.

On 9.10.2008 the mother then executed Deed of Trust declaring that the shares were paid by the Petitioner and that she was holding 40% Shares in the Respondent Company as Bare Trustee for the Petitioner,

1. the entire payment for the share subscription was paid for by the Petitioner;

2. that she holds the shares in trust and that the shares do not form part of her personal assets;

3. that at the Petitioner’s request his mother will execute all instruments of transfer to effect a transfer to the petitioner.

Unfortunately the Petitioner‘s mother passed away on 12.10.2008.The petitioner did sent the copies of the Trust Instrument to the Company secretary immediately after the completion of the funeral rites however there was no response from the Company Secretary. The Trust deed was only adjudicated on the 6.11.2008.

The Petitioner enquired about his Guarantees with the Respondent Company’s bank and was notified that there was an existing facility which the petitioner and his brother guarantee i.e. a loan of RM414,000.00.There are also properties which have be used as security, The value of the property is about RM4.5 million.

Two grounds in the Striking Out Application in Enclosure 10 by the Respondent. They are:-

1. The Petitioner is not a contributory. The Trust Deed is not valid and not recognized by virtue of section 163(4) of the Companies Act 1965 and the articles of association of the Respondent Company;

2. The Petitioner is not a Creditor for the sum of RM300,000.00

1^st Issue

In a winding up of a company the persons who may present an petition for winding up is provided under section 217 (1) of the Companies Act namely,

1. the company;

2. any creditor, including a contingent or prospective creditor, of the company;

3. a contributory or any person who is the personal representative of the deceased contributory or the trustee in a bankruptcy;

4. the liquidator;

5. the Minister pursuant to section 205 or on the ground specified under section 218 (1) (d);

6. Bank Negara Malaysia if it is a licensed institution;

7. Bank Negara Malaysia in the case of a company which is licensed under Insurance act 1996;

8. The registrar on the ground specified in section 218(1) (m) or (n).

A contributory is “…a person `liable to contribute to the assets of the company in the event of its being wound up. It includes the holder of fully paid shares in the company and, prior to the final determination of the persons who are contributories, include any person alleged to be contributory.”( Koh and Chan on Malaysian Company Law ;2^nd Edition).

Counsel for the Petitioner submitted that the law on the beneficial interest of the beneficiary in shares held in trust is settled. Beneficial interest passes with the purchaser of shares upon his full payment and execution of the transfer documents notwithstanding that the provisions of the Articles of association restricting the transfer have not been complied. However those restrictions do not have any application or bearing on the passing of beneficial interest and apply only to restrict the registration of legal interest.

A registered holder of the shares is a member of the company. A beneficiary who is not registered as a holder of shares has no connection or rights with the company in which shares are held on trust. Unfortunately in this case the mother who was the Trustee and the Petitioner, the beneficiary passed away before the Trust Deed could be registered. The deceased in the Trust Deed had stated that:-

1. The shares does not belong to her;

2. The Petitioner paid for the shares; and

3. The deceased was holding the shares in Trust.

Logendran denied in his affidavit (Enclosure 9) that the 40% shares of the Company were held by his late mother on behalf of the Petitioner. It is submitted by the Learned Counsel for the Respondent Company that even if the Trust deed dated 9.10.2009 is valid and that the Petitioner is the beneficial owner of the shares he is however still not a contributory as section 163(4) of the Companies act 1965 and Article 7 of the article of association provides that the Respondent shall not recognize the holding of any shares upon trust. The case of Yeng Hin Enterprise Sdn. Bhd. v. Liow Su Fah (1979) MLJ 240 was cited by the Respondent.

The Petitioner referred to the case of Miharja Development Sdn. Bhd. v. Tan Sri Datuk Loy Hean Heong [1995] 1 MLJ 101 where the High Court held that,

“The persons entitled to bring a petition under section 217(1)(c) include contributories and to the list should be added shareholders whose shares are pledged or held as security…”

It was also held by VC George J in Miharja’s case that the real shareholders of a company could exercise the rights of contributories and could...