The Federal Court held that arrears of interest are recoverable up to six years after date of judgment in a bankruptcy proceeding.
Facts of the Case
The appellant/judgment creditor (Pewira Affin Bank Bhd) obtained a judgment against the respondent/judgment debtor (Lim Ah Hee) on 23 October 1987 for a sum of RM2,963,054.86 with interest at the rate of 16.5% per annum from 1 December 1985 until full realisation. On 28 March 1996, the appellant took out a bankruptcy notice and served on the respondent on 3 June 1996. On 7 June 1996, the respondent served an affidavit to set aside the bankruptcy notice to the appellant claiming that the respondent had a counterclaim against the appellant. on 10 June 1996, respondent also served a notice pursuant to section 3(2)(ii) Bankruptcy Act 1967 alleging that the bankruptcy notice was incorrect and excessive because the respondent’s shares and dividends on the shares had not been taken into account.
On 19 March 1997, the senior assistant registrar dismissed both respondent’s affidavit and notice to set aside the bankruptcy notice. It was also declared that the act of bankruptcy was committed on 19 March 1997. The respondent appealed to the judge in chambers. At the hearing of the appeal, two preliminary objections were raised by the respondent. First, the respondent contended that the sum demanded in the bankruptcy notice was wrong as it included statute-barred interest. Secondly, the appellant had not obtained prior leave of court before instituting bankruptcy proceeding. This objection was resolved when appellant produced the order granting the leave.
Appellant had filed its creditor’s petition on 9 July 1977. On 19 August 1997, the first preliminary objection was dismissed by the High Court but the preliminary objection was allowed by the Court of Appeal on 17 January 2000. Subsequently the appellant appeal to the Federal Court on two questions.
Issue of the Case
Whether the second limb of section 6(3) of the Limitation Act 1953 is relevant and applicable to bankruptcy proceedings?
Whether the disputed bankruptcy notice is valid under the provisions of s. 3(2)(ii) of the Bankruptcy Act 1967 if the judgment debtor does not dispute that the claim stated in the bankruptcy notice is excessive within seven days from the date of service of the bankruptcy notice?
Judgment of the Court
First Issue
The Court held that bankruptcy proceeding is not a “writ of execution” within the meaning of Order 46 rule 2 of the Rules of High Court 1980. Thus, no leave of court is necessary to issue a bankruptcy notice after six years as required by Order 46 rule 2. A bankruptcy proceeding is an “action upon any judgment” under section 6(3) of the Limitation Act 1953 which the limitation period is twelve years and the claim for interest in respect of such judgment debt is limited to six years. Section 6(3) of the Limitation Act 1953 provides:
“(3) An action upon any judgment shall not be brought after the expiration of twelve years from the date on which the judgment became enforceable and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due.”
After comparing with the English Limitation Act, the Court held that the whole subsection should be read together and not to be split into two limbs. The Court are of the opinion that a bankruptcy proceeding is an action upon a judgment within section 6(3) of the Limitation Act 1953 and the limitation for bringing the action is twelve years but the arrears of interest may only be claimed for up to six years.
The Federal Court did not agree with the Court of Appeal judgment. Firstly, the date the interest became due is not the date which the interest was calculated. It should be the date of judgment because the interest merges with the judgment sum. Secondly, it was incorrect to calculate the period of limitation from the date the interest was calculated to the date of filing the bankruptcy notice. It should be calculated from the date of judgment. The Federal Court also dissented from United Malayan Banking Corp. Bhd. v. Ernest Cheong Yong Yin [2002] 2 CLJ 413 which held that a bankruptcy notice issued after six years from the judgment will be invalid if it includes a claim for interest even if the interest was limited to six years from the date of judgment.
In this current case, the judgment was obtained on 23 October 1987. Even though interest was calculated from a date before the judgment was obtained, it merges into the judgment debt and therefore the date the interest become due is the date of the judgment. Interest can only be claimed until 22 October 1993. Bankruptcy notice was filed eight years and five months from the date of judgment which is within the limitation period, so it is not out of time. The appellant is allowed to claim the arrears of interest from 23 October 1987 to 22 October 1993 when the bankruptcy notice was filled in 28 March 1996.
The appellant had claim in their bankruptcy notice the interest at the rate of 16.5% per annum from 1 February 1986 to 28 March 1996. So, the arrears of interest claimed was more than the six years period allowed. Thus, it renders the bankruptcy notice invalid.
Second Issue
The second issue was never raised in the High Court. The objection raised by the appellant was on the ground that no notice was given within seven days of service if the bankruptcy notice as required by section 3(2)(ii) of the bankruptcy Act 1967 because the respondent only raised the issue regarding interest as a preliminary objection about eleven months after the service if the bankruptcy notice.
The Court decline from answering the second question raised by the appellant because of the following reasons. Firstly, the High Court and Court of Appeal did not deal with this issue. Secondly, it is unfair as this point was neither raised nor argued in the High Court and therefore it should not be argued in this Court. Thirdly, it will encourage parties to raise new points as a case progresses if it is allowed. Fourthly, no objection had been raised on the respondent’s preliminary objection regarding interest. Respondent’s objection was also argued in full and decided in the previous Courts. Fifthly, the appellant’s objection regarding the failure to give notice is only procedural in nature. Therefore, it is too late for objection to be raised here.
Hence, the Court dismissed the appeal as the bankruptcy notice is invalid by claiming arrears of interest which the law does not permit.
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