The thing that's left out is that TS looks like a naive young fellow who could be easily bamboozled by that absurd story. The owner already planned to forfeit the deposit, and so told him that crazy story about having to stay till 1/1/2016 as per contract. And what do you know, he swallowed it. Noticed his initial posts. He'd probably try to argue with the landlord on that point, lost the argument, and left disappointed. If it was you or I, the landlord wouldn't try anything so absurd. (He'd try some other tactic instead).

TS probably already previously informed the owner verbally that he would be moving out at the end of the year. The owner simply said nothing, allowed him to leave a few days early, and when he's gone, the locks were changed. When he went to return the keys and collect the deposit, the landlord surprised him with that clause.

He should go back and this time bring a friend. Someone older, who looks more experienced. Where does TS work? Got a friend who might pass off as a lawyer?

The unfortunately fact is, there's no such thing as "police action". You can go make a police report. But that does not mean a police officer will accompany you back to the landlord's home, and threaten him with jail if he does not refund you the deposit. For one thing, what he did is not a crime. For another, this isn't their job.

I don't know if you could get a claim at small claims court. Never tried it myself.

I like the UK system where the landlords do not get to keep the deposit. So they cannot simply trump up some violation on the tenant's part and refuse to refund the deposit. Sometimes, they don't even make the excuse. They simply try to avoid meeting or getting calls from the tenant. In one of my previous jobs, there was one landlord who played hide and seek for 3 years. In the end, my boss relented and wrote it off. After that, he does the other thing that's bad in Malaysia.

When they want to leave, some tenants do not inform the landlord. They simply drag the rental, paying later and later, until when they actually leave, they've used up all their deposits. This way, they're not left at the mercy of the landlord who may or may not refund their deposits. My employer, who was otherwise very good tenants, always paying promptly every month without being asked, did this with every subsequent shop that he left. Because he operated a chain, there were a lot of these. Unfortunately, this means the landlords lose money in the form of lost rentals. Instead of advertising for new tenants before the old tenants leave, they're surprised by the tenant leaving suddenly, with the result that the property is vacant for a few months while they look for another tenant.

That is just the tenants reacting to previous bad experience. Either their own, or their friends/relatives. You know the saying. Once bitten, twice shy.

What we need is the system they have in the UK.
https://www.gov.uk/tenancy-deposit-protection/overview