Dr Thiagarajah A/L Ratnasamy AND Vija Y Kanchan

Brief facts:

The 1st and 2nd plaintiffs incorporated the 4th defendant, and charged his personal property
to bank to finance 4th defendant’s business operation. The 1st defendant was recruited by
the 1st plaintiff to develop the company. The defendant resigned as director on 5.10.1995,
but evidence show he was appointed as CEO of 4th defendant from 1996 onwards. The
plaintiffs sue the plaintiff on matters of misappropriation through siphoning from the
company (mass difference between gross profit and net profit) and on disputes regarding
share ownership in the company.

Court Judgment

-Plaintiffs were the founder and promoter of the 4th Defendant.

Were also responsible for making payments to suppliers, rental for the premises, fees for
pharmacists and co-ordinate with the pharmacists and manufacturer LBS for the registration
of products. Also the signatory of the bank application forms for the opening account and
was the sole signatory of cheques for the 4th defendant.

Did 1st Defendant pay for 30,000 shares (registered in the name of defendant on 5.5.1994)?

Defendant never produced any evidence of any application form or subscription form
regarding the 30,000 shares, also unable to produce 4th defendant’s resolution which
resolved to allot the 30,000 shares to him.

Argument of the 30,000 shares held on trust by 1st plaintiff is unacceptable since even if true
under Indian law 1st Defendant could not hold shares in 4th defendant (foreign registered
company), 1st Defendant could still transfer the shares to his wife who is a Malaysian. A 6 of
the company Memorandum of Association also does not recognize shares being held in trust
by anyone.

Additionally, even if there is a trust in the first place it is tainted with illegality since the
intention was to perpetrate a fraud on public administration of both india and Malaysia

The court accepts the explanation from plaintiff that the 30,000 shares given to the 1st
defendant were for the purpose of letting the 1st defendant having a sense of belonging in
the 4th defendant.

Did the 1st Defendant subscribed for the 1st 200,000 shares in the 4th defendant and paid
for them and are those shares held by the 1st plaintiff in trust for the 1st defendant?

On 30.9.1997, there was an EGM held by the 4th Defendant where it increased its paid up
capital by issuing 200,000 new shares of RM1 per share.
However, evidences have shown that the shares were not allotted to the defendant or that
the plaintiff held it on trust for him. Next, registration of the shares was shown to be paid
with cash. The defendant’s evidence of payment was through the 4th defendant bank
account on 6.2.1998 where the payment was bank in. In continuation, it has been proven
the defendant was in financial difficulty in that period and had borrowed money from the
plaintiff. He only had RM996.25 to his credit in the bank account at material time.

(inadvertent slip)

Validity of 6.8.2001 resolution

The 1st defendant claimed there is a transfer of shares of 225,000 from the 1st and 2nd
plaintiffs on the date, whereby he relied on the resolution (dated 6.8.2001) to justify he had
paid for the shares. He also said there is no condition for payment in the resolution.

Still, reading the resolution would show the transfer subjected to two conditions. First,
indemnify the 2nd plaintiff of all liabilities n actions during her tenure as director/shareholder
of the company. Second, the 4th defendant is to redeem the 1st plaintiff’s properties charges
to the bank as security.

The second condition was invalid due to violating s 67 Companies Act, whereby company
was prohibited to provide financial assistance to any person in connection with the company
for purpose of shares. While it was argued by the defendant that the purpose of the
discharge of the plaintiff’s property was to redeem the charged properties for the benefit of
the 4th defendant and not to improperly deplete company assets, the settlement under the
resolution is still to obtain the 225,000 shares, and thus invalid under s 67. The first
condition was invalid in the face of s 140(1) Companies Act prohibiting indemnity from
company providing to company officer which would include director.

The 60,000 shares

30.10.1995, EGM approved of 60,000 shares issued and allotted to the 1st plaintiff in lieu of
non payment of salaries and emoluments. The defendant argued the shares were allotted
without resolution and plaintiff has not paid for the shares. There was notice for forfeiture
of the shares from the defendant.

The Court decided that the circular resolution on 30.6.1994 had resolved the plaintiff being
entitled to remuneration. Subsequently, it was approved and resolved by the EGM on
30.10.1995. The defendant has not shown any evidence the 1st plaintiff not entitled to this
remuneration.

One of the witnesses who is the company secretary also testified that he had certified the
resolution to pay the directors their remuneration when monies are available.
Misappropriation of RM52,295.23

The defendants contend sometime in 1997, 1st Plaintiff misappropriated such sum from the
4th defendant’s funds for himself towards his benefit. By drawing on 3 cheques all as a loan
to the 1st Plaintiff, who was the sole authorized signatory at material time. There was no
resolution for the loans.

The Court provided that law on remunerations forbid directors could not be paid out of
company’s assets unless authorized by instrument which regulates the company or by the
shareholders at a properly convened meeting. Additionally, A 70 of 4th defendant Articles of
Association stipulates remuneration for directors must be determined by the company in
general meeting. Thus, despite the previous resolutions on 30.6.1994 and 30.10.1995 which
entitled the plaintiff to receive remuneration, it is not the same as an authorization to draw
out the remuneration. Therefore, the plaintiff which was the director at the material time is
in fiduciary relationship with company and is precluded from acting in a manner which will
bring his personal interest into conflict with his company.

Gladwin

Defendant alleged Gladwin a foreign personnel never worked for the 4th defendant and was
instead employed by company Primetime Systems Sdn Bhd whereby on material time the 1 st
plaintiff was the director of it.

Evidences were shown that Gladwin indeed worked for the 4th defendant despite his work
permit under PrimeTime, whereby witnesses have provided that Gladwin worked under the
instruction of the 1st defendant and salary paid by the 4th defendant under instruction of the
1st defendant. There was also a letter from the 1st defendant which corroborated the
evidence that Primetime is solely used as a vehicle to apply for Gladwin’s work permit.

Thus, there is no misappropriation of 4th defendant fund of RM54,338.23 by the 1st Plaintiff
in paying Gladwin’s salary.

Removal of the 1st plaintiff as director of the 4th defendant

The 1st plaintiff as a director was removed by the 1st defendant through an ordinary
resolution, and there was no evidence from the defendant that a special notice or any notice
at all was given to the 1st plaintiff on a meeting regarding his removal. A 69 of the company
AA may have allow for the ordinary resolution, but it must be override by s 128(2) of the
Companies Act.
Vietnam and Cambodia operations and allegation of siphoning 4th Defendant funds
through the Vietnam and Cambodian operations by the 1st Defendant.

The main crux of the Plaintiffs argument was that the defendants mis-use their position in
the company, whereby there were often massive mismatch between gross and net profit. In
addition, the plaintiff adduced the defendants incorporated a company in Cambodia, in
which 1st defendant held 51% and the 4th defendant 49%, whereby the defendants siphon
money through Healol Cambodia. The Plaintiffs averred they were not aware of the
incorporation of Healol Cambodia.

The Court is inclined to accept the defendant’s version whereby the plaintiffs were aware of
Healol Cambodia establishment, since evidences from the accountant has shown monthly
remittances from Malaysia to Cambodia through a letter.

Still, the main complaint from the plaintiff was that the defendant as company CEO never
reported on the performance of Healol Cambodia and its account as fully owned subsidiary
was never included in the 4th defendant account. Additionally, it was decided by the Court
that early ago the conduct of defendant whereby 51% of Healol Cambodia by July 2000
transferred from Suon Levin to 1st defendant instead to 4th defendant immediately show the
intention of the 1st defendant to have sole control of healol Cambodia and to do his own sole
business. The full transfer of shares to HC was only done after the action has been filed

Asides from that, evidences shown that the 1st defendant as CEO never lodge any documents
with Registrars of Companies Malaysia on Healol Cambodia as subsidiary of 4th defendant,
and there was no resolution. The company secretary also denied of having knowledge
regarding Healol Cambodia.

Besides that, while there were increases from 1999 to 2005 in term of income for Healol
Cambodia, none of these were shown or reflected in 4th defendant financial report. Thus, it
shown that the plaintiffs were not aware of the actual true picture on Healol Cambodia
operations which were suppressed by the 1st defendant. The Court agreed with the
submission that that the plaintiffs as shareholders/directors of the 4th defendant by that
time deserved to have full knowledge of HG financial affair

Additionally, remittance from HM to HG as mentioned in the accountant letter earlier ago

are to be treated as loan and have to be paid back, and yet there is no evidence from the
defendants that the loans have been paid.

The scheme of the defendant function as when the 4th defendant receive payment from a
buyer, the entire sum is paid over to the supplier. Afterwards, the 1st defendant then issued
a debit note to the supplier to refund the difference between price paid by buyer and selling
price charged to 4th defendant . The 1st defendant will then collect the refund based on the
debit note in cash but the sum was not credited into the 4th defendant’s account. The 1st
plaintiff is unaware of such arrangement. When cross examined the defendant was evasive
on the matter.
Afterwards, despite the defendant arguments of the 1st defendant were in india developing
business in the relevant timestamp and the 4th defendant account in Vietnam was operated
by