In a pivotal decision by the Court of Appeal (“COA”) had overturned the High Court’s decision and found 16 property transactions were not genuine sale and purchase agreements, due to them being in contravention to the Moneylenders Act 1951 (“MA 1951”).
Summary of Facts
The case revolves around a series of transactions between AJ Kasturi Sdn Bhd and MA Joseph Capital Sdn Bhd (collectively, “the Plaintiffs”), property owners who sought urgent financing after their bank loan application of RM5 million was rejected. They were introduced to M Pannirselvam, a lawyer, who facilitated funding from various individuals (“the Purchasers”) under terms that included:
- a transfer of properties as security;
- monthly payments labeled as “legal fees” or “rentals,”; and
- an alleged “Option to Purchase” allowing the Plaintiffs to buy back the properties.
They urgently needed RM2 million to fund a property acquisition. The lawyer allegedly arranged for funding from private individuals, with terms including:
- Security in the form of property;
- Deduction of three months’ interest at source;
- Legal fees borne by the plaintiffs; and
- Execution of documents before loan disbursement.
After receiving RM1.745 million and being paid a monthly interest of RM80,000.00, the Plaintiffs later defaulted on payments, and the properties were transferred to the lenders. The Plaintiffs later filed suits claiming the transactions were illegal moneylending arrangements disguised as property sales, and sought to annul the transfers and recover the properties.
Principal Issues Determined by the High Court
Were the Transactions Genuine Sales or Sham Moneylending Arrangements?
The Plaintiffs argued that the sale and purchase agreements were a disguise for unlicensed moneylending, citing high interest rates and deductions at source. They claimed the “Option to Purchase” was fabricated and that the properties were used as collateral for loans. The High Court judge, Justice Indra Nehru Savandiah rejected this claim, as a result of finding no evidence of loan structures, in addition to the Plaintiffs voluntarily signing the documents.
The principles from Global Globe Property[1], were applied, emphasizing that external evidence and conduct can be used to determine the true nature of a transaction. Ultimately, the High Court concluded that the transactions were genuine sales, not disguised loans and the Plaintiffs’ claims were dismissed with costs.
Role of Legal Professionals and Alleged Misconducts
In response to the Plaintiffs’ claim against the Purchasers, for professional misconduct under the Legal Profession Act 1976, for facilitating illegal moneylending, the High Court held that misconduct allegations are to be addressed by the disciplinary board and not the civil courts. In addition to the fact that no complaints were lodged to the Advocates & Solicitors Disciplinary Board, the Plaintiffs had also failed to prove coercion or lack of legal representation.
Payment Structure and Deductions at Source
The High Court had equally found that the Plaintiffs’ claim that the agreement entered into represented a loan structure with no merit, due to the deductions being consistent with the terms of the Option to Purchase, no objections were made, and no breaches of the Solicitor’s Account Rules were pleaded.
Delay in Property Transfers and Market Value Concerns
Additionally, in respect of the claims of a loan structure, the High Court had found that the delays were consistent with the terms of the Option to Purchase, only one property had a valuation discrepancy, and the Plaintiffs themselves had engaged in similar transactions with upfront payments exceeding standard deposits.
Court of Appeal’s Reversal
On 21 August 2025, the COA delivered a decisive reversal. Justice Ahmad Fairuz Zainol Abidin, delivering the broad grounds of judgment, stated that the High Court had erred in both law and fact.
The appellate bench, chaired by Justice Nazlan Ghazali and joined by Justice Faizah Jamaludin, found that the SPAs were indeed a sham, and designed to disguise an illegal loan. Hence, the properties were unlawfully pledged as collateral. Moreover, the COA also found the “letter of option” relied upon by the defendants was questionable and defied commercial logic, since it was not executed by the lenders. The plaintiffs had successfully established that the transactions were not genuine property sales.
Justice Fairuz emphasized:
“The Moneylenders Act 1951 exists to protect borrowers and cannot be circumvented.”[2]
Among the reliefs ordered by the COA included the re-transfer of all 16 properties to the plaintiffs; general, exemplary, and aggravated damages to be assessed; costs of RM320,000 in favour of the Plaintiffs; and for the High Court’s judgment to be set aside.
This appellate decision underscores the protective intent of the MA 1951, which regulates lending activities and prohibits unlicensed moneylending. Moneylender is defined broadly and imposes strict licensing requirements. Section 5(1) MA 1951 prohibits any person from carrying on a moneylending business without a license, and Section 29AA MA 1951 creates a rebuttable presumption of moneylending if interest is charged. The High Court had dismissed the plaintiffs’ reliance on these provisions, stating:
“Section 27A (1), Section 27A (2), and Section 29AA of the Moneylending Act 1951 relate to criminal offences… do not apply to civil proceedings.”[3]
However, the COA took a more expansive view, recognizing that the substance of the transactions, and not merely their form, must be scrutinized. The appellate court also rejected the reliance on the unsigned “letter of option,” which the High Court had accepted as evidence of a genuine buyback arrangement. The COA found this instrument to be commercially illogical and lacking legal force.
The COA’s ruling in AJ Kasturi Sdn Bhd v Pannirselvam marks a pivotal moment in Malaysian property and private equity industries. It reaffirms the judiciary’s role in protecting borrowers from predatory lending practices and upholds the integrity of the MA 1951. By declaring the SPAs null and void and ordering the re-transfer of properties, the appellate court has provided clarity in that legal instruments cannot be used to circumvent statutory protections, and courts will not hesitate to pierce the veil of formality to uncover the substance of unlawful transactions.
[1] Global Globe Property (Melawati) Sdn Bhd v Jangka Prestasi Sdn Bhd [2020] 6 CLJ 1.
[2] AJ Kasturi Sdn Bhd v Pannirselvam a/k Mannar Ors [2024] MLJU 1874.
[3] ibid.