Aisyah DATUK TAN LENG TECK v SARJANA SDN BHD & ORS [1997] 4 MLJ 329 PRINCIPLES: **Section

n 67 (1): the company is prohibited from: (a) Giving financial assistance for the acquisition of its shares or shares in its holding company; (b) Purchasing or dealing in its own shares; and (c) Lending money on the security of its own shares. **A contract which was prohibited by the statute did not become void and unenforceable if the statute itself saved the contract or there were contrary intentions which could reasonably be read from the language of the statute itself

FACTS: PLAINTIFF: Datuk Tan Leng Teck DEFENDANT 1: Sarjana Sdn Bhd (SSB) DEFENDANT 2: Pasti Hasil Sdn Bhd (PHSB) Plaintiff, Tan Guat Ngo and Tan Bock Chuan were shareholders of SSB. On 8/6/1992-Plaintiff used SSB as a vehicle to purchase a land from Sin Hong Teng Co Sdn Bhd at the purchase price RM4,910,166. On 19/6/1992-SSB entered into an agreement with PHSB to re-sell the land to PHSB at a price of RM15, 896,995. According to the agreement, RM1,000,000 of the purchase consideration will be capitalized as paidup capital for 1,000,000 shares in the SSB. PHSB had paid RM3,300,000 for the land to SSB and RM1,000,000 out of this payment had been considered as a payment for 1,000,000 shares in SSB. Thus, 1,000,000 shares had been allotted to PHSB. Plaintiff brought the case before the court to declare that the allotment of the shares to PHSB void.

ISSUES: 1. Whether the transaction made between SSB and PHSB amount to financial assistance within the meaning of S. 67(1)? 2. Whether the contract/agreement made between SSB and PHSB valid or not? PLAINTIFFS ARGUMENTS: RM1,000,000 was to be treated as payment for the allotment of shares to PHSB. However, the fact is RM1,000,000 forms part of the purchase price of the land which the PHSB was obliged to pay to SSB and it is not for the shares. But, the transaction between SSB and PHSB is different which amounted to no cost on the shares allotted to PHSB which arising from the sale transaction.

Aisyah The transaction was used as a vehicle to discharge the obligation of PHSB to SSB with regard to the payment arising from the allotment of shares.

DEFENDANTS ARGUMENTS: Plaintiff has led no evidence to show that RM1,000,000 out of RM3,300,000 of the payment for the land was used to finance the purchase of the 1,000,000 shares in SSB

JUDGMENT: Augustine Paul JC, ISSUE 1 Eh Dey Pty Ltd (In liquidation) v. Dey [1966] VR 464: the court held that the company had given financial assistance in connection with the purchase of shares by agreeing to treat the defendant as having paid a certain sum which he at that time owed the company. S.67(1)- Prohibit the company from giving financial assistance unless it is for a bona fide commercial transaction entered in good faith. Present case: Indeed, there is financial assistance which prohibited by S.67(1). SSB assisted PHSB to acquire 1,000,000 shares without any payment by reason of RM1,000,000 accruing from the sale of the land being treated as payment for the shares cannot be considered as bona fide commercial transaction. The value of the share capital in SSB had reduced since PHSB did not pay anything for the share and thus, we may construe that SSB had assist PHSB to acquire the share in SSB. The transaction was not a transaction whereby SSB acquired anything which it genuinely needed for its own purpose. It was a transaction which facilitated PHSBs acquisition of control of SSB for its own purpose.

ISSUE 2 A contract which was prohibited by the statute did not become void and unenforceable if the statute itself saved the contract or there were contrary intentions which could reasonably be read from the language of the statute itself. (Chung Kiaw Bank Ltd v Hotel Rasa Sayang SB [1990]1 MLJ 356) Present case: the court hold that since S. 67(3) provides penalties for the breach of S. 67(1) and S.67(6) provides remedies for the breach, these may be considered as saved the contract between SSB and PHSB and have contrary intention from S.67(1). Thus, the transaction entered into in breach of the S.67(1) is valid and enforceable but the parties were subjected to the remedies and penalty provided under the same Section. However, according to S. 67(6) SSB may enforce payment arising from the allotment of the shares for which it gave financial assistance.

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