Can Loans be Recovered under Void Moneylending Agreements? The Court of Appeal Weighs In
19 August 2025
“…while all illegal agreements are void, not all void agreements are illegal” – per Faizah Jamaludin JCA
Introduction
In the recent case of Golden Wheel Credit Sdn Bhd v Dato Siah Teong Din [2025] MLJU 2245, the Court of Appeal considered whether a licensed moneylender, whose moneylending agreements were void for non-compliance with the Moneylenders Act 1951 (“MLA 1951”), could nonetheless obtain restitution of the unpaid principal sums disbursed under those agreements pursuant to sections 66 and 71 of the Contracts Act 1950 (“CA 1950”). The Court drew an important distinction between a contract that is merely void and one that is illegal and applied the guidelines of the Federal Court in Detik Ria Sdn Bhd v Prudential Corporation Holdings Ltd & Anor [2025] 3 MLJ 22 in determining whether restitution under section 66 CA 1950 ought to be granted to the licensed moneylender in this case.
Relevant Facts
The appellant, Golden Wheel Credit Sdn Bhd (a moneylender licensed under the MLA 1951) executed two moneylending agreements with the respondent, Dato Siah Teong Din, for sums of RM2 million and RM1.5 million respectively (“Moneylending Agreements”). The agreements were secured by corporate guarantees from Instant Bonus Sdn Bhd (“IBSB”), a company in which the respondent was both shareholder and director. Pursuant to the respondent’s instructions, the loan sums totalling RM3,423,500 were disbursed to IBSB. Only RM40,000 was repaid, and IBSB was later wound up in 2019.
It is undisputed that the Moneylending Agreements were void and unenforceable for non-compliance with the requirements of the MLA 1951, in that: (i) the agreements were executed using the wrong statutory form; (ii) interest was charged at 18% per annum, exceeding the statutory cap of 12% applicable to secured loans; and (iii) stamped copies of the agreements were not delivered prior to disbursement.
Nevertheless, the appellant sought restitution of the unpaid principal sum under sections 66 and 71 of the CA 1950, relying on the principle of unjust enrichment and the doctrine of monies had and received.
The High Court held that the Moneylending Agreements were both void and illegal, thus disentitling the appellant to relief. The appellant appealed.
Decision of the Court of Appeal
| a) |
Whether the Moneylending Agreements, admittedly void and unenforceable under the MLA 1951, were also illegal. |
Voidness versus Illegality
The Court of Appeal accepted that the Moneylending Agreements were void due to non-compliance with the MLA 1951. However, the Court disagreed with the High Court that such non-compliance rendered the agreements illegal. It reaffirmed the principle that while all illegal contracts are void, not all void contracts are illegal. Non-compliance with sections 10P, 16 and 17A of the MLA 1951 makes an agreement void and exposes the lender to statutory penalties, but the provisions do not expressly declare such contracts illegal.
The Court further held that the object and purpose of the loans were lawful, as they were neither fraudulent, immoral, nor contrary to public policy. With regard to the consideration (i.e. interest), although the rate charged was erroneous and constituted an offence under the MLA 1951, this did not in itself render the agreements illegal within the meaning of section 24 of the CA 1950.
| b) |
Whether the appellant is entitled to restitution of the unpaid principal. |
Restitution under Section 66 CA 1950
The Court then considered whether restitution could be ordered for the unpaid principal. While the Moneylending Agreements were void ab initio, section 66 of the CA 1950 obliges a party who has received an advantage under a void agreement to restore or compensate for it.
Relying on the Federal Court’s decision in Detik Ria Sdn Bhd v Prudential Corporation Holdings Ltd [2025] 3 MLJ 22, the Court of Appeal applied the two-stage test:
- Centrality of the Illegality in the Statute Breached – The Court held that the appellant’s non-compliance was not central to the core prohibitions under the MLA 1951, which are directed at unlicensed moneylending activities and extortionate lending practices. The appellant was a duly licensed moneylender and the loans in question were genuine moneylending transactions.
- Proportionality – The Court held that denying restitution would result in the unjust enrichment of the respondent, as the loan sums had been disbursed at his direction to his company, IBSB. It emphasised that the Moneylending Agreements were “transparently structured as agreements to lend money by a licensed moneylender, without any attempt to disguise their true nature”. The agreements accurately reflected their intended purpose, with no concealment of nature or object of the transactions. In these circumstances, refusing relief under section 66 of the CA 1950 would not constitute a proportionate response, particularly since the Moneylending Agreements, though void, were not illegal.
On these grounds, the Court concluded that restitution was the appropriate remedy and accordingly ordered the respondent to repay the unpaid principal together with interest from the date of the judgment to the appellant.
Key Takeaways
The Court of Appeal reaffirmed that not all void contracts are illegal, and this distinction is critical when assessing claims for restitution under section 66 of the CA 1950. The decision makes clear that non-compliance with statutory requirements under the MLA 1951 renders moneylending agreements void and unenforceable but does not automatically preclude the lender from seeking restitution of loan sums advanced in appropriate circumstances. Ultimately, the Court underscored its fundamental role of doing justice, ensuring that statutory non-compliance which renders a contract void is not exploited or used as a shield for unjust enrichment.
Case Note by Karen Tan (Senior Associate) of the Dispute Resolution Practice of Skrine.