Ramesh Mohandas Nagrani v United Overseas Bank Ltd

• Jurisdiction: Singapore
• Judge: Chua Lee Ming JC
• Judgment Date: 20 October 2015
• Neutral Citation: [2015] SGHC 266
• Plaintiff Counsel: Assomull Madan D T (Assomull & Partners)
• Docket Number: Originating Summons (Bankruptcy) No 78 of 2014 (Registrar’s Appeal No 117 of 2015)
• Date: 20 October 2015
• Hearing Date: 17 July 2015,31 July 2015
• Subject Matter: Bankruptcy,Insolvency Law,Statutory Demand
• Year: 2015
• Citation: [2015] SGHC 266
• Defendant Counsel: Chew Ming Hsien Rebecca and Ang Siok Hoon (Rajah & Tann Singapore LLP)
• Court: High Court (Singapore)
• Published date: 30 October 2015

Chua Lee Ming JC: Introduction

This was an appeal by the plaintiff (“the Debtor”) against the Senior Assistant Registrar’s decision dismissing his application to set aside the statutory demand (“the SD”) issued against him by the defendant (“the Bank”).

The debt claimed in the SD arose out of three guarantees (“the Guarantees”) signed by the Debtor in respect of banking facilities obtained by three companies (“the Borrowers”) from the Bank. The Debtor was the sole director and shareholder of each of the Borrowers.

Before me, the Debtor sought to set aside the SD on three distinct grounds: First, under r 98(2)(d) of the Bankruptcy Rules (Cap 20, R1, 2006 Rev Ed) (“the Rules”) for non-compliance with r 94(1) in that: the amount of the debt stated in the SD was as of a date earlier than the date of the SD, and/or the note in Part B of the SD referred to “bankruptcy petition” instead of “bankruptcy application”. Second, under r 98(2)(c) of the Rules for non-compliance with r 94(5) in that: the SD did not specify the nature and value of the Debtor’s property held by the Bank; and/or the SD reflected property that was not property of the Debtor. Third, under r 98(2)(b) of the Rules on the ground that the debt was disputed on substantial grounds.

I disagreed with the Debtor’s submissions and dismissed the appeal. The Debtor has appealed against my decision.

Whether there was non-compliance with r 94(1) of the Rules, and if so, whether the SD must be set aside under r 98(2(d)

The SD was dated 25 February 2014 but the amount of the debt claimed in the SD was stated to be as of 20 February 2014. In addition, the note to the Debtor in Part B of the SD stated as follows:

If you do not comply with this statutory demand or set it aside, the creditor may file a bankruptcy petition against you.

If you wish to avoid a bankruptcy petition being presented against you, you must pay the sum demanded … [emphasis added]

Rule 94(1) of the Rules provides that a statutory demand “shall be in Form 1”. Form 1 is the prescribed form for a statutory demand and requires the creditor to state the “[e]xact sum due as of date of demand”. The note in Part A of Form 1 explains that the particulars of the debt must include the “actual amount of debt as of the date of the demand”. The note to the Debtor in Part B of Form 1 uses the expression “bankruptcy application” instead of “bankruptcy petition”. For these two reasons, the Debtor submitted that the SD failed to comply with r 94(1) since it did not conform to the specifications of Form 1.

The Bank accepted that the note in Part B of the SD should have referred to a “bankruptcy application” but submitted that the Rules did not require the SD to state the amount of the debt due on the date of the SD. The Bank submitted that under the Rules, a statutory demand can state an amount that is different from the amount actually owing by the debtor as at the date of the statutory demand; all that is required is that the amount demanded must have accrued by the date of the statutory demand. In support, the Bank referred to r 94(2) which provides that the “statutory demand shall state the actual amount of the debt that has accrued as of the date of the demand”. According to the Bank, the SD had complied with r 94(2) of the Rules since on 25 February 2014, the amount of the debt stated on the SD (which was expressed to be the amount owing as of 20 February 2014) had already accrued.

I disagreed with the Bank’s submissions. The Bank had to comply with r 94(1); failure to do so was a ground for setting aside the SD under r 98(2)(d). Rule 94(1) requires the SD to be in Form 1. Form 1 unequivocally requires the SD to state the amount due as of the date of the demand. The “date of the demand” referred to in Form 1 has to mean the date of the SD which in this case was 25 February 2014. In my view, the requirement under r 94(2) was the same – the SD had to state the amount that had accrued due as of the date of the SD. It did not make sense to interpret r 94(2) to allow a statutory demand to state an amount due on a date earlier than the date of the demand when this would be contrary to what was required in Form 1. This was all the more so when non-compliance with r 94(1) was expressly stated to be a ground for setting aside the statutory demand under r 98(2) whereas non-compliance with r 94(2) was not.

The next question was whether the two defects in the SD were fatal. The Debtor argued that strict compliance with r 94(1) of the Rules was necessary and submitted that as r 98(2)(d) of the Rules uses the word “shall”, it was mandatory to set aside the SD if r 94(1) was not complied with. Rule 98(2)(d) provides that the “court shall set aside the statutory demand if … rule 94(1) has not been complied with”.

The Debtor also submitted that strict compliance with r 94(1) was necessary because of the “draconian” and “quasi-penal” consequences of bankruptcy. The Debtor referred to Re Peh Kong Wan, ex p United Malayan Banking Corp Bhd [1992] 2 MLJ 292, which was cited in Re: Wong Kin Heng, ex parte Imperial Steel Drum Manufacturers Sdn Bhd [1998] SGHC 237 at [33].

I disagreed with the Debtor’s submissions. The Debtor’s submissions meant that any non-conformity with Form 1, no matter how trivial or inconsequential, would invalidate a statutory demand. In my view, this could not have been the intent behind rr 94(1) and 98(2)(d) of the Rules. The interpretation of the Act and Rules must take “into account the radical changes the legislation has undergone and the prevailing consequences of bankruptcy, which are far less dire than they used to be” (see Re Rasmachayana Sulistyo (alias Chang Whe Ming), ex parte The Hongkong and Shanghai Banking Corp Ltd and other appeals [2005] 1 SLR(R) 483 (“Rasmachayana”) at [29]). The legislative intent is to accord “precedence to substance over form and/or technicalities” and “any prima facie inference raised by [words such as ‘shall’ or ‘must’] may be dislodged after taking into consideration the scope and objectives of the legislation and the consequences arising from alternative constructions” (see Rasmachayana at [24]).

I agreed with the Bank’s submission that s 158(1) of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“the Act”) applies to situations of non-compliance with r 94(1) of the Rules. It reads as follows:

No proceedings in bankruptcy shall be invalidated by any formal defect or by any irregularity, unless the court before which an objection is made to the proceedings is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of that court.

As noted in Rasmachayana at [27], s 158(1) of the Act exemplifies the “underlying philosophy of pragmatism and substantial justice [which] permeates through the entirety of the [Act] and [Rules]”. However, lest it be thought otherwise, I would also echo the learned judge’s reminder in Rasmachayana at [29] that a more flexible approach under the new Act is not to be “construed as an imprimatur for slipshod practices but rather as a statutory directive for judicial pragmatism”.

The Bank also referred to Re A Debtor (No 1 of 1987) [1989] 1 WLR 271. That case involved an application to set aside a statutory demand on the grounds that it was not in the form prescribed, had overstated the amount of the debt, and the particulars of the calculation of the amount claimed set out in the supporting affidavit were perplexing and inconsistent with the supporting exhibits. The Court of Appeal refused to set aside the statutory demand because there was no evidence of prejudice to the debtor and no evidence to suggest that he would have taken steps to satisfy a non-defective demand (at 279D–E). Although the Insolvency Rules 1986 (SI 1986 No 1925) (UK) which the court was considering are not on all fours with our Rules, in my view, the court’s pragmatic approach makes good sense.

In the present case, there was no evidence of any injustice (let alone substantial injustice) suffered by the Debtor as a result of the two defects in the SD. It cannot seriously be suggested that the use of the term “bankruptcy petition” instead of “bankruptcy application” had caused any injustice to the Debtor. As for the amount of the debt stated in the SD, it was clear to the Debtor what he had to pay to discharge the SD. Had the Debtor paid the amount due as of 20 February 2015 (which was stated in the SD), the SD would have been spent. I therefore concluded that the non-compliance with r 94(1) of the Rules in this case was not fatal and I declined to set aside the SD under r 98(2)(d).

Whether there was non-compliance with r 94(5) of the Rules The Debtor’s property under a hire-purchase agreement

The Debtor had a car that was financed under a hire-purchase agreement with the Bank (“the HP Agreement”). According to him, as at the date of the SD, the value of the car exceeded the remaining amount owed to the Bank under the HP Agreement. The Debtor submitted that the car or, alternatively, his interest under the HP Agreement, was property which fell within the scope of r 94(5) of the Rules.

Rule 94(5) provides that:

If the creditor holds any property of the debtor or any security for the debt, there shall be specified in the demand – (I) (a) the full amount of the debt; and (II) (b) the nature and value of the security or the assets.

...