The Validity Of Unstamped Agreements in Malaysia

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As we are all aware, the importance of having a written contract is to ensure that the terms of any agreement under any transactions are documented. We will feel safe thinking that when there is any dispute arises under the said contract, our rights and interests remained to be protected. However, would the agreement still be enforceable in a circumstance where it is not stamped? Would it still be okay to evade the payment of stamp duty in order to save money?

The Act

Section 52 of the Stamp Act 1949 (“The Act”) stipulates that the instruments specified under the First Schedule of the Act must be duly stamped by the Inland Revenue Board of Malaysia (IRB) in the manner specified under Section 40 and Section 47 of the Act to enable the instruments to have a complete legal effect by being admissible in court as evidence.

Under the Act, if you fail to stamp the instrument within the period stipulated, you will be liable to pay for the unpaid payable duty together with the penalty imposed under Section 47A which provides as follows:

  1. RM25.00 or 5% of the amount of the deficient duty, whichever sum be the greater, if the instrument is stamped within 3 months after the time for stamping;
  2. RM50.00 or 10% of the amount of the deficient duty, whichever sum be the greater, if the instrument is stamped later than 3 months but not later than 6 months after the time for stamping; or
  3. RM100.00 or 20% of the amount of the deficient duty, whichever sum be the greater, in any other case (if the instrument is stamped beyond six months after the required time for stamping).

However, the Act does not state clearly whether or not unstamped instruments are valid and enforceable. The legal position to address the issue of the validity of unstamped instruments can be seen in a Federal Court case of Malayan Banking Bhd v Agencies Service Bureau Sdn Bhd & Ors (1982) 1 MLJ 198 where it was held that unstamped instrument only affects the admissibility of the instrument in evidence, but it does not render that particular instrument to be invalid. The Court further held that “the stamp objection really relates to the safeguarding the government revenue, unless if the non-stamping goes to the root or validity of the instrument or the case is on a revenue dispute.”

In the High court case of Omega Securities Sdn Bhd v Dato’ Hamzah Bin Abdul Majid (2011) 8 MLJ 12 where in this case, the issue raised before the Court was whether the Margin Facility Agreement is invalid due to the non-stamping of the said agreement. The Court, in this case, has made reference to the principle used in the Federal Court case of Malayan Banking Berhad and further held that “in this case, the non- stamping of the Margin Facility Agreement did not go to the root or validity of the document. It was only an issue of the government revenue”. Therefore, the Margin Facility Agreement remained to be valid.

Based on the above authorities, it appears that unstamped agreements remained to be valid despite being inadmissible as evidence in Court. As such, any party that wishes to tender an unstamped agreement in Court are required to get the agreement stamped for it to be admissible as evidence.

Prepared by Zahia Adlina Zamri.


Need to consult a lawyer regarding writing an agreement or reviewing an agreement?