On 18 January 2021, the Court of Appeal in Md Isa Bujang v CIMB Bank Berhad dismissed a bankrupt's appeal against a High Court decision that struck out his claim for, inter alia, damages of RM22,445,601.64 against CIMB Bank Berhad for delay in the auction of his property charged to the Bank. The Bank was represented by our Partner, Claudia Cheah and Senior Associate, Aufa Radzi.
- The Director General of Insolvency ("DGI") has no power to grant a retrospective or 'nunc pro tunc' sanction under Section 38(1)(a) of the Insolvency Act 1967, regardless of the wording used in the document granting the sanction.
- Without the previous sanction of the DGI, a bankrupt has no locus standi to commence an action for damages against the Bank.
The Appellant was a third party chargor for one of the lands charged as security for the banking facilities granted by the Bank to a borrower. Both the borrower and the Appellant defaulted in payments. In 1998, an Order for Sale was granted by the Land Administrator to sell the lands. The lands were successfully sold at an auction in 2011.
The Appellant, an undischarged bankrupt, commenced a suit at the High Court against the Bank. He alleged that the Bank had delayed the auction of the lands, resulting in a substantial increase in the amounts owing under the banking facilities due to accruing interest.
The Appellant sought for inter alia, a declaration that the amounts owing by the Appellant to the Bank is incorrect and damages of RM22,445,601.64, purportedly being the difference between the value of the lands and the actual amount owing to the Bank.
Decision of the High Court
The High Court in Md Isa Bujang v CIMB Bank Berhad  1 LNS 1888 allowed the Bank's application to strike out the Appellant's suit. Section 38(1)(a) of the Insolvency Act, 1967 reads:-
"38. Duties and disabilities of bankrupt
- Where a bankrupt has not obtained his discharge:
- the bankrupt shall be incompetent to maintain any action (other than an action for damages in respect of an injury to his person) without the previous sanction of the Director General of Insolvency;"
Whilst the Appellant allegedly applied for sanction of the DGI prior to filing the suit, the sanction was only given three months after the suit was filed. The High Court agreed with the Bank that the sanction from the DGI must be obtained before the filing of the suit.
The High Court also found that the delay in auction was not occasioned by the Bank's neglect.
Decision of the Court of Appeal
On appeal to the Court of Appeal, the Appellant's counsel argued that the sanction granted by the DGI had a retrospective effect pursuant to the principle of 'nun pro tunc' (which means "now for then").
The Appellant argued that since the sanction letter expressly used the word "memulakan", the commencing of the suit was with the sanction of the DGI. Further, there were triable issues on the long delay in the auction process resulting in excessive interest charged on the debt and this warranted a determination at a full trial.
The Bank's counsel argued that the plain wording of section 38(1)(a) of the Insolvency Act 1967, which provides for "previous sanction" to be given by the DGI, must be given its strict effect. The requirement for previous sanction is a statutory recognition of public interest and public policy consideration to ensure that the bankrupt's affairs are properly regulated and supervised by the DGI.
In this regard, the courts have in several cases confirmed that the word "maintain" would include the filing of a civil action, and the word "previous" signifies that the sanction cannot be given retrospectively, regardless of the wording used in the document granting the sanction.
On the issue of delay in the auction process, such allegation is not supported by contemporaneous documents and the Court of Appeal has in the case of Perwira Affin Bank Berhad v Lim Weow  3 MLJ 56, held that there is no bar as to when an auction can be conducted following an order for sale.
The Court of Appeal agreed with the Bank's submissions and found that there was no merit in the appeal. Thus, the appeal was dismissed and the High Court's judgment was affirmed.
This decision is important as the Court of Appeal held that no retrospective sanction can be granted under Section 38(1)(a) of the Insolvency Act 1967 to authorise the filing of a civil action for damages by a bankrupt. The capacity of a bankrupt to commence an action is not merely a technical issue but goes to the root of the action.
Originally Published by SKRINE, January 2021
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