BALACHANDRAN KANDASAMY v. PERMATA SAUJANA (M) SDN BHD & ANOR

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Company Law: Winding up - Stay - Application for

IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR

ORIGINATING PETITION NO. D3-28-198-2001

BETWEEN

Balachandran a/1 Kandasamy ... Petitioner

AND

Permata Saujana (M) Sdn Bhd
Cheong Swee Ing .... Respondents

JUDGMENT

This is an application by way of Notice of Motion (Enclosure 129) filed by the respondents for stay of the order of this Court made on the 20.10.2004 ["the Order"] pending the hearing and determination of the appeal made by the respondents to the Court of Appeal against the said Order. Under the said Order, the petition presented for the winding up of the first respondent company ["the company"] by the petitioner who is a contributory of the company was allowed by this Court and Jeyaraj A/L V. Ratnaswamy as nominated by the petitioner was appointed as the provisional liquidator of the company.

At the outset it is my view that this Court is empowered to consider an application for the stay of the order under its inherent jurisdiction. The respondents have the right to make this application as this right is still retained despite a winding order has been made and a provisional liquidator has been appointed. In the case of Sri Hartamas Development Sdn. Bhd. v. MBF Finance Berhad [1991] 3 MLJ 325 the Supreme Court inter alia stated that where there is a right of appeal it is implicit that there is also a right to make any incidental application in respect of a pending appeal to the Court as provided in section 44(1) of the Courts of Judicature Act 1964. As the Rules of the High Court 1980 does not have a corresponding provision to section 44(1) of the Courts of Judicature Act 1964,1 am of the view that this Court is then seized with its inherent powers to grant such a stay of a winding up order for the purpose of a pending appeal. The submission of the learned Counsel for the petitioner that the power to stay a winding up order for the purpose of a pending appeal is governed by the provision of section 243 of the Companies Act 1965 and that the respondent has failed to satisfy its requirement is totally misconceived.

Before dealing with the merits of the respondents' application I shall first address to the issues of preliminary objection raised by the petitioner in respect of the application. The petitioner has contended that the respondents' Notice of Appeal has not been properly brought before the Court of Appeal as the Notice of Appeal has not been served on all parties directly affected by the appeal, that is all the creditors as stated in the List of Parties attending at the hearing of the petition who were supporting the petition. The petitioner further contended that since the respondents' application has not been served on all the parties directly affected by the application the respondents' application has also not been properly brought before this Court. I find the petitioner's contention on these two issues untenable in the circumstances of this case. It is my view that the provision of Rule 6 of the Rules of the Court of Appeal 1994 only applies when a person has been made a party to the proceedings and has applied and allowed to be joined as a party. In the present application the supporting creditors are not party to the proceedings by merely supporting the winding up proceedings filed by the petitioner against the first respondent. Until and unless one is joined as a party to the action there is no obligation for the applicant party to serve unto him any cause papers that has been filed into Court. A supporting creditor has to apply to substitute the petitioner even in the case when the petitioner wishes to withdraw itself as a petitioner before the supporting creditor can be a party to the action.

I shall now deal with the merits of the respondents' application. The principles of law applicable for an order to stay execution or proceedings can be found in a number of decided cases. In the case of Kosma Palm Oil Mill Sdn. Bhd. & Ors. v. Koperasi Serbausaha Makmur Bhd. [2004] 1 MLJ 257 his lordship Augustine Paul JCA in delivering the judgment of the Federal Court at page 264 had this to say:

"In my judgment, the paramount consideration governing an application for a stay, whether of execution or of proceeding or, in the case of an application for some other form of interim preservation of the subject matter of an appeal, such as the grant of an injunction or other appropriate relief under S 44(1) of the Courts of Judicature Act 1964, is that the appeal to this court, if successful, should not be rendered nugatory. If upon balancing all the relevant factors, this court comes to the conclusion that an appeal would be rendered nugatory without the grant of a stay or other interim preservation order, then it should normally direct a stay or grant other appropriate interim relief that has the affect of maintaining the status quo. "

In the case of Kerajaan Malaysia v. Jasanusa Sdn. Bhd. [1995] 2 MLJ 105 his lordship Edgar Joseph Jr. FCJ in delivering the judgment of the Federal Court inter alia stated as follows:

"Though the court has an unfettered discretion whether to grant or refuse a stay of execution, the discretion must, nevertheless, be exercised on established judicial principles (see the Federal Court case of Mohamad Mustafa v. Kandasami (No. 2) [1979] 2 MLJ 126. Seranson Garden Estate Ltd. v. Ang Kang [1953] MLJ 116). It will, as rule only, grant a stay if there are special circumstances (see Syarikat Berpakat v. Lim Kai Kok [1983] 1 MLJ 406). A stay will be granted if there are special circumstances, notwithstanding that the tax is due and payable under S 103(1) of the Income Tax Act 1967 ("the Act"). What, then, constitute special circumstances? It was said in Mohamed Mustafa v. Kandasami (No. 2) at page 127, that:

"One of the determining factors that calls for consideration is whether by not making an order of stay of the execution it would make the appeal if successful, nugatory in that it would deprive on appellant of the results of the appeal. How pertinent that factor would be may vary according to the circumstances of each particular case. "

"If, for example, another ground had been that there were merits in the appeal, that fact couple with the fact that the defendant, if successful, could not be restored to his original position might well have afforded special circumstances to justify the learned district judge in exercising his discretion to grant a stay... "

The learned counsel for the respondents submitted that the winding up order made on the 20.10.2004 against the first respondent company has a far reaching implication in that the whole administration of the company would be placed under the provisional liquidator who may not have the requisite knowledge of the administration of the company. There has been no information provided as to the ability and capability of the provisional liquidator in managing the company. Furthermore the respondents alleged that the provisional liquidator is not known to the respondents. It was contended that in the event the appeal to the Court of Appeal is allowed against the decision of this court made on 20.10.2004, there would be a need to make restitution as to the acts of provisional liquidator which would be difficult to deal with by then as it would involve third party interest. On this point in the case of Chai Yan Tek v. Ng Swee Kiat (1997) 3 MLJ 717 his lordship Gopal Sri Ram, JCA had this to say:

"The jurisdiction to make restitution is inherent in every court and is exercised whenever the justice of the case demands it (see Barhm v. Kadar Nath Marwari AIR 1922 PC 269, Prayong Narain v. Kamekhea LR 36(a 97). In Lala Bhagwan Das v. Lala Kishen Das (1953) SCR, the Supreme Court of India put the matter thus:

'On the reversal of judgment, the law raises an obligation on the party to the record who received the benefit of the erroneous judgment to make restitution to the other party what he had lost and that it is the duty of the court to enforce that obligation unless it is shown that restitution would be purely contrary to the real justice of the case.'

The underlying principle is that when the main judgment or order is varied or reversed all orders consequential or depending upon it are affected and wrongs done under them have to be righted by granting restitution. In order to do this, the court may make any order including an order for the refund of costs or the payment of interests, damages, compensation or mesne profits as may properly be consequential on such variation or reversal of order. "

It is to be noted that the primary objective of the provisional liquidator appointed in this case would be to liquidate all the assets of the first respondent company for the sole purpose of paying the provisional liquidators fees and expenses first and then the other creditors of the company. The respondents would not be able to estop the provisional liquidator from doing so as he will be well within his statutory powers to act. In this respect I am in agreement with the contention of the respondents that in the event the Court of Appeal allows the respondents' appeal, restitution has to be done and this would create complications as the issue of bona fide purchasers for value would arise and the unnecessary expenses that had been incurred would be irrecoverable. The appeal would then be rendered nugatory.

It is my view that the petitioner would not be prejudiced in the event this court grants a stay on the order dated 20.10.2004 as the petitioner's rights and interests in the company would be intact as a shareholder. In a winding up proceeding once a winding up order is made it cannot be set aside even though the said company had settled its debts. The company can only apply to stay the winding up order which in effect stops the further operation of the winding up order. The respondents' application as I see it is aimed at merely preserving the status quo and the integrity of the appeal before the Court of Appeal.

Notwithstanding that I have allowed the petitioner's application for the winding up of the first respondent company, I still hold the view that the respondent's appeal is not frivolous and it merits consideration as there are various issues raised by the respondents which could be ventilated before the Court of Appeal as follows:

Whether it is just and equitable that the first respondent company be wound up pursuant to section 218(1)(i) Companies Act 1965.
Whether the first respondent company was initially a partnership before its incorporation.
Has there been a delay in the petitioner filling his petition pursuant to section 218(1)(i) Companies Act 1965.
Is the second respondent who is a shareholder of the first respondent company a nominee to her husband named Fang Leng Kieng.
Does the second respondent has any responsibility to elect the petitioner as a director in the first respondent company.

For the reasons above stated I hereby allow the respondents' application and made no order as to costs in respect of the hearing of this application.

(DATO' ZULKEFLI BIN AHMAD MAKINUDIN)
Judge High Court
Kuala Lumpur

2nd Februari 2005

Counsel for Respondents:

Encik Harcharan Singh dari Tetuan Harcharan S Sidhu & Associates.

Counsel for Respondent/Petitioner:

Miss S. Malliga dari Tetuan Malliga & Associates.

Miss Veni for Official Receiver.