INTRODUCTION
An invalid loan agreement may be unenforceable, but that does not necessarily mean that the borrower can keep the money received.
On 5.8.2026, the Federal Court dismissed the application for leave to appeal against the Court of Appeal decision in KBH Marine Industry Sdn Bhd & Anor v Ace Credit (M) Sdn Bhd and other appeals [2026] 2 MLJ 362.
The Court of Appeal held that a licensed moneylender could recover the monies it had disbursed, even though the underlying loan agreement was declared void for non-compliance with the Moneylenders Act 1951.
BACKGROUND FACTS
Ace Credit is a licensed moneylending company under the Moneylenders Act 1951. Ace Credit entered into a loan agreement dated 20.10.2017 (“Loan Agreement”), together with other loan documents, including a memorandum of deposit and charge annexure (“collectively known as the Related Loan Documents”).
Pursuant to the Loan Agreement, Ace Credit disbursed the following sums: –
- a) RM35,000,000.00 to Pioneer Conglomerate;
- b) RM4,517,823.84 to KBH Marine; and
- c) RM10,482,176.16 to Malayan Banking Berhad to enable KBH Marine to redeem three charged landed properties (“the Properties”).
Following the disbursement, Ace Credit lodged private caveats over the Properties pursuant to the charge annexure as security for the loan.
The loan was subsequently not repaid. Several suits were commenced between the parties, in relation to the Loan Agreement and the Related Loan Documents: –
- a) In Civil Suit No. PA-22NCVC-74-05/2018 (“Suit 74”), KBH Marine sought, among others, a declaration that the Loan Agreement is null and void pursuant to the Moneylenders Act 1951. KBH Marine shall not be liable to Ace Credit for any loan granted pursuant to the Loan Agreement, and that the private caveats lodged on the Properties be removed and/or struck out.
- b) In Civil Suit No. PA-22NCVC-123-05/2019 (“Suit 123”), Ace Credit sought repayment of the outstanding loan amount under the Loan Agreement.
- c) In Civil Suit No. PA-22NCVC-11-04/2019 (“Suit 11”), Pioneer Conglomerate sought, among others, a declaration that the memorandum of deposit was void and unenforceable.
QUESTIONS OF LAW
The questions of law arising from the suits were, in gist, as follows: –
- 1. Whether the Loan Agreement was null and void for being in contravention of the Moneylenders Act 1951?
- 2. If the answer to the first question is affirmative, whether as a result, all the other instruments executed pursuant to the agreement were illegal, void, irrelevant and unenforceable?
- 3. If the answer to the second question is affirmative, whether Ace Credit is entitled to any remedies in restitution under Section 66 of the Contracts Act 1950, money had and received, unjust enrichment and/or any other remedy?
THE HIGH COURT DECISION
The High Court answered all three questions in the affirmative.
It was held that the Loan Agreement was void and had no effect for contravening the Moneylenders Act 1951. The High Court also ordered the private caveats lodged over the Properties to be removed.
In addition, the High Court ordered KBH Marine to restore to Ace Credit the money it had received.
THE COURT OF APPEAL DECISION
Dissatisfied with the judgment, the parties appealed against different parts of the High Court’s decision. The Court of Appeal dismissed the appeals and upheld the High Court’s decision on the three questions of law.
The Loan Agreement Was Void for Non-Compliance with the Moneylenders Act 1951
It was undisputed that the form of the Loan Agreement and the interest charged did not comply with the Moneylenders Act 1951. The Court of Appeal therefore upheld the finding that the Loan Agreement was void.
Ace Credit sought to rely on the defence of acquiescence and argued that the relevant parties were aware of the variations to the prescribed form of the loan agreement and the interest rate but had not objected to them. Therefore, they could not subsequently complain about those changes.
The Court of Appeal rejected the defence and held that estoppel or waiver could not defeat statutory requirements enacted as a matter of public policy or to guard against illegality.
The Related Loan Documents and Private Caveats Were Invalid
The Court of Appeal held that the Related Loan Documents, including the memorandum of deposit and charge annexure were invalid. Even though the charge annexure and private caveats created separate security rights in favour of Ace Credit, the Court held that they were inextricably connected to the agreement.
Once the underlying Loan Agreement was avoided, the basis for the security fell away and the security could no longer stand independently. It followed that once the Loan Agreement was invalidated, the Related Loan Documents and private caveats were also invalid.
Ace Credit Was Entitled to Restitution Under Section 66 of the Contracts Act 1950
To determine whether restitution under Section 66 is available, the Court of Appeal applied the Federal Court’s guidelines in Detik Ria Sdn Bhd v Prudential Corp Holdings Ltd & Anor [2025] 3 MLJ 22, which set out a two-stage assessment: –
- a) Firstly, evaluating the centrality of the illegality within the context of the statute breached.
- b) Secondly, assessing the proportionality of denying Section 66 remedy in light of the illegality.
At the first stage, the Court of Appeal held that even though the Loan Agreement contravened the Moneylenders Act 1951, these contraventions did not amount to substantive illegality under Section 24 of the Contracts Act 1950. Ace Credit was a licensed moneylender, the Loan Agreement did not impose extortionate interest rates on the borrower and neither its consideration nor its object was immoral or against public policy.
At the second stage, the Court of Appeal held that denying restitution under Section 66 would not be a proportionate response based on the following considerations: –
- a) Ace Credit had wholly performed its obligations, while the principal sum remained unpaid;
- b) Granting restitution would not undermine the purpose of the Moneylenders Act 1951 because the Loan Agreement, although void, was not an illegal moneylending transaction;
- c) The nature of the contravention of the Moneylenders Act 1951 was not serious. The Loan Agreement was transparently structured as a genuine moneylending transaction by a licensed moneylender, without any attempt to disguise its true nature or purpose.
CONCLUSION
The Court of Appeal affirmed that the Loan Agreement was void for non-compliance with the Moneylenders Act 1951. The Related Loan Documents and private caveats were also invalid because they were inextricably connected to the Loan Agreement and could not stand independently once the underlying agreement was avoided.
However, the voidness of the Loan Agreement did not preclude Ace Credit from obtaining restitution under section 66 of the Contracts Act 1950. Applying the Detik Ria guidelines, the Court held that the statutory contraventions did not amount to substantive illegality and that, in the circumstances, denying restitution would be disproportionate.
Disclaimer: This article is for general information only and does not constitute legal advice or legal opinion. It should not be relied upon as a substitute for specific legal advice. No person should act (or refrain from acting) based on this article without obtaining advice on the specific facts and circumstances. Halim Hong & Quek does not accept responsibility or liability for any loss or damage arising from reliance on this article. Halim Hong & Quek reserves the right to update, amend or withdraw this article at any time. All rights reserved.
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About the authors
Ankit R. Sanghvi
Partner
Dispute Resolution
Halim Hong & Quek
ankit.sanghvi@hhq.com.my
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Tan Zec Kie
Associate
Dispute Resolution
Halim Hong & Quek
zk.tan@hhq.com.my
