Introduction
In the recent case of Lua Thiang Poh v Kabir Singh a/l Jagir Singh & Ors [2025] MLJU 2365, the Kuala Lumpur High Court dismissed the Plaintiff’s claim for the principal sum of RM2.3 million and monthly “returns” of RM2.78 million said to arise from several transactions and promissory notes, holding that the arrangements constituted unlicensed moneylending, not investments.
Background Facts
The 5th Defendant (D5) was a licensed moneylender. The 1st and 3rd Defendants were directors and shareholders of D5. Between 2013 and 2015, the Plaintiff transferred sums totalling RM2.3 million to D5 by way of 6 transactions. Each transaction was documented by a Promissory Note (“PN”) prepared by the Defendants.
Each PN set fixed monthly instalments / payments and was backed by post-dated cheques for the instalments plus undated cheques for the principal as security. The initial PNs were later replaced with new PNs stated which contain a clause stating the PN would be automatically renewed unless the Defendants received a three months’ notice from the Plaintiff before the automatic renewal.
On 1.6.2022 and 3.6.2022, the Plaintiff banked in all the principal cheques provided as security. However, none of the cheques cleared. The Plaintiff then filed this suit in the High Court to recover the principal sums totalling RM2.3 million and RM2.78 million in monthly payments.
Plaintiff’s case
The Plaintiff claimed that the PNs were valid and enforceable investment agreements. The monthly payments constituted returns on investment, not interest, and that the renewal clauses contained in several of the notes extended the agreements automatically.
The Plaintiff acknowledged that he is not a licensed moneylender, but merely a senior executive who had chosen to place funds with the Defendants for business growth.
Defendants’ case
The Defendants claimed that the PNs were void for illegality because they contravene the Moneylenders Act 1951. The PNs were not investments but loans disguised as such. The monthly payments are interest payments and the PNs were used to camouflage an illegal moneylending transaction as the Plaintiff was not a licensed moneylender.
Decision of The High Court
Investment or Loan?
The High Court dismissed the Plaintiff’s claim in its entirety. The High Court critically examined the evidence and conduct of parties and found that the transaction between the parties was a loan arrangement rather than an investment.
The High Court observed that while the PNs do not explicitly state whether the transaction was an investment or a loan, the PNS contain features characteristic of loan agreements, including fixed monthly payments (akin to interest), security in the form of post-dated cheques, and provisions for the return of the principal sum. The structure of the transaction – advancing a sum of money in return for regular fixed payments and the eventual return of the principal – is consistent with a loan rather than an investment. The regular fixed monthly payments required under the PNs – unrelated to business performance – bear all the hallmarks of interest.
These features are also inconsistent with the very nature of investments. In this case, the Plaintiff was protected from risk since he was assured of steady payments and the safe return of his money. This arrangement is more consistent with a creditor-debtor relationship in a loan transaction rather than an investment.
Further, the consistent references to “interest” and “principal money return” in correspondence and records showed that both sides understood the arrangement as one of lending, not investing. The parties’ own words reflected the true nature of the transaction.
Principal & Interest are not Recoverable
As an unlicensed moneylender, the loan agreement embodied in the PNs was void and unenforceable pursuant to Section 15 of MLA 1951, which stipulates that no moneylending agreement in respect of money lent by an unlicensed moneylender shall be enforceable.
Further, any moneylending agreement by an unlicensed moneylender will be unenforceable due to public policy. The High Court referred to the Federal Court case of Triple Zest Trading & Suppliers & Ors v Applied Business Technologies Sdn Bhd [2023] 10 CLJ 187, which observed that it is in the public interest for unlicensed moneylenders to be deprived of their illegal “principal loan sums”, interest and whatever ill-gotten property or benefit enjoyed from their unlawful moneylending business. The Federal Court held that the courts will not assist an unlicensed moneylender to recover either interest or principal.
The High Court ruled that the transaction between the parties was a loan arrangement, not an investment. Therefore, the PNs were a loan arrangement and are void and unenforceable under the MLA 1951. Applying Section 15 MLA 1951 and the Federal Court’s reasoning in Triple Zest, the High Court held that, once the transaction is an unlicensed loan, neither interest nor principal is recoverable.
Conclusion
The decision of the High Court reinforces the approach that the Courts will look beyond labels such as “investment” and “dividends” and examine the contents of the documents and the parties’ conduct to determine the true relationship between the parties and the type of transaction that they have entered into. The Courts will look at the substance of the transaction, not merely by the labels assigned to it.
About the authors
Chew Jin Heng
Senior Associate
Dispute Resolution
Halim Hong & Quek
jhchew@hhq.com.my
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Esther Lee Zhi Qian
Associate
Dispute Resolution
Halim Hong & Quek
esther.lee@hhq.com.my
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