Photo by Zahid Izzani/The Edge

PUTRAJAYA (July 30): The bid by Prudential Corp Holdings Ltd and The Prudential Assurance Company Ltd to wholly own the insurance operation in Malaysia — Prudential Assurance Malaysia Bhd (PAMB) — has failed.

In setting aside earlier decisions by the High Court and Court of Appeal, the Federal Court on Tuesday ruled that Detik Ria Sdn Bhd had no obligation to sell its 49% stake in Sri Han Suria Sdn Bhd, which owns PAMB.

Besides retaining its equity interests Detik Ria is expected to receive all benefits from the 49% stake including dividends, if any, and the dispute may be resolved further in the High Court, the apex court ruled.

Detik Ria’s lead counsel Tan Sri Tommy Thomas had submitted in court that the dividends paid in the period under review amounted to RM2.72 billion, and hence Detik Ria should be given 49% of that sum or RM1.3 billion. The exact sum is being disputed.

Sri Han Suria is 50.99% owned by Prudential Corp and 49% by Detik Ria, while the remaining 0.01% is held by PCA IP Services Ltd.

A check on Companies Commission of Malaysia shows that Detik Ria is jointly owned by 10 entities, each holding a 10% stake. They are: Berjaya Capital Bhd (a 100%-owned unit of Berjaya Corp Bhd as at Oct 2, 2023), Ekuiti Spektrum Sdn Bhd, Seahouse Capital Sdn Bhd, Antara Merdeka Sdn Bhd, Pentas Sentral Sdn Bhd, Arah Juara Sdn Bhd, Cangkat Selasih Sdn Bhd, Persada Majestik Sdn Bhd, Serata Setia Sdn Bhd, and Gabungan Majestik Sdn Bhd.

When the matter first entered court in 2019, Detik Ria was at the time equally owned by Tan Sri Abdul Rahim Din and Tunku Datuk Seri Shahabuddin Tunku Besar Burhanuddin, The Edge reported based on information obtained from a company search.

The High Court in its decision in 2020, upheld by the Court of Appeal in 2022, ruled that there was nothing wrong in the enforcement of two put and call options agreements entered into by Prudential Assurance and Detik Ria, which would have allowed the disputed 49% stake to be passed to Prudential Corp.

However, the Federal Court, in a unanimous decision, ruled that section 67 of the now-repealed Insurance Act 1996 was breached, when two put and call agreements entered into by the companies in 2002 and 2009 were carried out without the finance minister's approval.

“The court below erred in its decision that recognised the agreements despite such agreements being carried out without the minister's approval under Section 67 of the Insurance Act 1996. It erred in relying on the approval from Bank Negara Malaysia (BNM),” said Tan Sri Nallini Pathmanathan, who led the three-member bench, which also included Datuk Seri Hasnah Mohamed Hashim and Datuk Harmindar Singh Dhaliwal.

Nallini said Prudential Corp and Prudential Assurance are required to return any benefits receiveds under the two agreements, which includes the dividends paid out from Sri Han Suria.

Nallini also directed Detik Ria to return a sum in excess of RM109.205 million, being the part payments for its 49% stake in Sri Han Suria, with 5% interest running from September 2019.

Nallini in addition directed Prudential Corp and Prudential Assurance to pay costs of RM200,000.

Detik Ria had initially been ordered to pay RM25,000 costs by the High Court and RM50,000 costs by the Court of Appeal.

Minister’s approval

Tommy had submitted that Section 67 of the Insurance Act requires acquisitions or disposals of shares in a licensee company above 5% to obtain the approval of the finance minister.

Tommy, who appeared with Tey Jun Ren, Mervyn Lai and Chuar Kia Lin, told the apex court that it was agreed that the approval of the minister was not obtained in 2018 for the acquisition.

“Approval from the minister has to be gained before the disposal of the stake. Here, it is agreed that only BNM gave approval to complete the acquisition of the options shares in June 2019 and not the minister,” he said.

This, Tommy said, resulted in the agreement to be void, and hence Detik Ria was right to rescind it. The company had subsequently filed a counterclaim when the two Prudential companies filed the suit.

Tommy said the notice of recission issued by Detik Ria in 2018 is what caused Prudential to make the application for approval to BNM. This was disputed by the two Prudential companies, who filed their initial suit against Detik Ria. The latter subsequently filed a counterclaim.

The two Prudential companies, represented by senior lawyers Datuk Dr Cyrus Das and Datuk Bastian Vendargon, had argued that the High Court and Court of Appeal decisions were correct.

They said that their clients had made the application to BNM to complete the acquisition of Detik Ria’s 49% stake in Sri Han Suria in 2018 in accordance with the Financial Services Act 2013, and had accordingly obtained the approval from the central bank in June 2019.

“It was only in 2018 that BNM with the approval of the Ministry of Finance had agreed to put forward the two options to fulfil the divestment requirements, namely either a disposal of shares in excess of 70% to domestic investors directly or via an initial public offering, or by cash contribution to a special insurance development trust fund,” they said, referring to BNM’s letter dated Sept 24, 2018 issued to Prudential Plc.

“This is further evidence of the applicable law to complete the transaction as envisaged under the agreements in the Financial Services Act 2013 and not the Insurance Act 1996, which had been repealed by 2018 when the application for approval was submitted by Prudential Corp,” they argued.

Tommy replied that it could not be that the Prudential company had the 70% stake mentioned in said BNM letter, as Detik Ria still held the 49% stake when the letter was issued.

In the High Court decision, judge Datuk Ahmad Fairuz Zainol Abidin found that the two put and call option agreements entered between the parties in 2002 and 2009 to be conditional contracts that were conditional upon approval from BNM.

The judge at the time ruled that there were no elements of illegality arising from the contracts, and that the conduct of the parties did not suggest that they were labouring under any mutual mistake, and hence the agreements were not void.