Ambank (M) Bhd v Aim Edition Sdn Bhd [2021] MLJU 2512

Federal Court (Putrajaya)

Judicial sale conducted on a land

1. The dispute arose from a public auction sale of land following a loan default. The Respondent, Aim Edition Sdn Bhd (“the purchaser”), filed a claim for compensation against the Appellant, Ambank (M) Bhd (“the chargee bank”), alleging a breach of contract due to a discrepancy in the actual size of the land purchased.
2. The background of the case began when SAP Holdings Berhad (“SAP”) was the registered owner of approximately 94.76 hectares of land located in Bandar Selayang, Gombak, Selangor (“the subject lands”). SAP entered into a joint venture with Cergas Tegas Sdn Bhd (“Cergas”) to develop the land. To finance the project, Cergas obtained a RM17 million loan from Ambank (then Arab-Malaysian Finance Berhad) and charged the subject lands as security for the facility. Upon Cergas’s default in repayment, Ambank exercised its rights as chargee by applying for a judicial sale through public auction.
3. At the third auction held on 11 November 2016, Aim Edition successfully bid for the property at the reserve price of RM120 million, after two previous auctions failed when earlier bidders did not complete payment. Aim Edition subsequently executed the necessary documents and paid a 10% deposit. On 5 June 2017, the Respondent was registered as the new owner of the land.
4. However, before the transfer was completed, the Respondent appointed a surveyor in May 2017 to verify the actual size of the land. The survey revealed that the subject land overlapped with five other land lots, amounting to 12.7655 hectares. These overlapping portions were already registered under separate titles, some of which were occupied by schools and one parcel designated for a sekolah agama. Consequently, the Respondent alleged that it received only 81.9945 hectares instead of the 94.76 hectares stated in the Proclamation of Sale which is a shortfall of about 13.48%.
5. The Respondent claimed that this constituted a breach of a material term, as the Appellant had failed to deliver the full extent of land as described. It sought compensation for the loss corresponding to the overlapped areas.
6. In defence, Ambank contended that the transaction was not a contractual sale but a judicial sale conducted under a Court order in the exercise of its rights as chargee. The bank further relied on the Conditions of Sale, which stipulated that the land was sold strictly on an “as-is-where-is” basis. Under these terms, the purchaser was not entitled to compensation for any misdescription, and it was their duty to conduct due diligence and inspection prior to bidding.
7. Ambank also argued that the Respondent’s claim was without merit, as it could have discovered the overlap earlier through proper inspection, noting that several schools had been visibly constructed on the disputed portions. The Respondent countered that it was prevented from inspecting the site before the auction due to the presence of security guards and maintained that the Appellant, as a financial institution, should have performed its own due diligence and valuation checks before granting the original loan secured by the land.

Whether a judicial sale pursuant to section 257 of the National Land Code 1965 gives rise to a contract between the chargee bank and a successful bidder.

Ratio

Whether a judicial sale pursuant to section 257 of the National Land Code 1965 gives rise to a contract between the chargee bank and a successful bidder.

1. The Federal Court held that a judicial sale conducted pursuant to section 257 of the National Land Code 1965 (NLC) does not create or give rise to a contractual relationship between the chargee bank and the successful bidder. Consequently, no cause of action in contract can be maintained against the chargee arising from such a sale.
2. The Court emphasized that the auction process under the NLC is a statutory mechanism which is a judicial sale ordered and supervised by the Court, not a private sale based on mutual consent between a vendor and a purchaser. Therefore, the relationship between the chargee and the bidder cannot be interpreted through the principles of the Contracts Act 1950.
3. In reaching its decision, the Federal Court reaffirmed and adopted the principles laid down in Ranjit Singh v Malayan Banking Bhd [2014] 7 CLJ 764 and M & J Frozen Foods Sdn Bhd & Anor v Siland Sdn Bhd & Anor [1994] 1 MLJ 294. In Ranjit Singh, the Court had similarly held that no contract exists between a chargee bank and the successful purchaser at a court-ordered auction, as the bank merely exercises its statutory right of sale under the NLC. The Federal Court observed that this was the binding ratio that should have been applied by the Court of Appeal.
4. Further, the Federal Court clarified the nature of the parties’ relationship in a judicial sale. The chargee does not become the vendor of the land; rather, the sale is conducted by the Registrar of the High Court as an officer executing a judicial order. The chargee is merely the party who initiates the process to recover the secured debt and acts only as a conduit for the transfer of title. Ownership of the land remains vested in the chargor until registration of transfer is completed.
5. This interpretation accords with the commentary in Judith Sihombing, National Land Code – A Commentary (LexisNexis, 2019 Desk Edition, Vol. 2 at pp. 1206 & 1219), where the author states that the chargee is not selling as owner but merely triggers the court-ordered sale and has no control over the proceeds, which are held by the Court.
6. The Federal Court expressly rejected earlier decisions that treated the chargee as the vendor, such as Malayan United Finance Bhd v Mohamed Azmal Noor [1992] 2 MLJ 182, Kuala Lumpur Finance Bhd v Yap Poh Kian & Ors [1991] 3 CLJ (Rep) 75, and Lim Beng v AVA Palaniappa Chetty [1922] 1 FMSLR 764. The Court explained that those cases were based on outdated principles from the Land Enactment 1911, which recognized the English mortgage system which is a framework no longer applicable under the National Land Code 1965, which operates under the Torrens system and does not recognize equitable mortgages.
7. Citing Kimlin Housing Development Sdn Bhd v Bank Bumiputera (M) Bhd [1997] 2 MLJ 805, the Court reiterated that the chargee’s right of sale under sections 256–257 of the NLC and Order 83 of the Rules of Court 2012 is a statutory right, not a contractual one. The chargee’s involvement is confined to initiating the sale and ensuring procedural compliance with the court order.
8. Accordingly, the Federal Court concluded that the judicial sale of the land was purely statutory in nature and did not give rise to contractual obligations between the chargee and the purchaser. As such, the respondent’s claim for breach of contract under the Contracts Act 1950 was misconceived.

The appeal was allowed, the Court of Appeal’s decision was set aside, and the High Court’s ruling reinstated.

A judicial sale under section 257 of the National Land Code 1965 does not create a contract between the chargee bank and the successful bidder. Such a sale is a statutory process, not a private transaction.