Case Updates

Case Update: The effect of negative pledge in banking facility agreement under Remission Order

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BANKING & FINACE
Stamp duty – Ad valorem stamp duty – Facility agreement – Application for remission under Stamp Duty (Remission)(No.2) Order 2012 (“Remission Order”) – Negative pledge – Security – Whether negative pledge in a banking facility agreement was a ‘security’ within the meaning of Remission Order – Whether entitled to remission under Remission Order – Stamp Duty Act 1949
 
Muhibbah Engineering (M) Bhd v Pemungut Duti Setem
[2017] 10 CLJ 66, Court of Appeal
 
Facts Maybank Islamic Berhad (“Maybank”) provided banking facility to the appellant, a company. A facility agreement was executed between the appellant and Maybank for the transfer/refinancing of the appellant’s combined tradeline facilities from MYR330 million to Islamic combined tradeline facilities amounting to MYR595 million. The appellant paid ad valorem stamp duty on the facility agreement amounting to MYR1.98 million. Maybank issued the receipt for stamping. The respondent, Pemungut Duti Setem, then received a letter from the appellant appealing against the stamp duty and seeking application of para 2 of the Stamp Duty (Remission) (No.2) Order 2012 (“Remission Order”)[1] to the facility agreement. This was rejected by the respondent. The appellant appealed for reconsideration together with the supplemental amendment and restatement agreement but was rejected. Aggrieved, the appellant appealed to the High Court. The High Court dismissed the appeal holding that the facility agreement was with security and therefore subject to payment of stamp duty. Hence, this appeal.
 
Issues The issues were whether (i) negative pledge in a banking facility agreement was a ‘security’ within the meaning of the Remission Order; and (ii) they were entitled to remission under the Remission Order.
 
Held In allowing the appeal, the Court of Appeal held that the negative pledge by the appellant was not a security but a mere pledge to abstain from creating any form of charge, encumbrance or security. There does not exist in the facility agreement any security for any sum or sums of money repayable on demand or in single bullet repayment, therefore the facility agreement is a loan agreement without security and is entitled to remission under the Remission Order.
 
[1] Sub-sub item 22(1)(b) of the First Schedule to the Stamp Act 1949 read with para. 2 of the Remission Order provides that stamp duty that is chargeable on a loan agreement or loan instrument without security for any sum or sums of money repayable on demand or in single bullet repayment, is remitted.