GSIS v. Court of Appeals (G.R. No.

183905)

FACTS: The annual stockholders meeting (annual meeting) of the Manila Electric Company (Meralco)
was scheduled on 27 May 2008. In connection with this, proxies were required to be submitted on or
before 17 May 2008, and the proxy validation was slated for five days later, or 22 May.

- In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco became
vacant thus the board of directors of Meralco designated Jose Vitug to act as corporate secretary
for the annual meeting. However, when the proxy validation began on 22 May, the proceedings were
presided over by respondent Anthony Rosete (Rosete), assistant corporate secretary and in-house chief
legal counsel of Meralco.

- Private respondents nonetheless argue that Rosete was the acting corporate secretary of Meralco.
Petitioner Government Service Insurance System (GSIS), a major shareholder in Meralco, was distressed
over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco
management.

- Thereafter, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, seeking the
declaration of certain proxies as invalid. 3 days later, GSIS filed a Notice with the RTC manifesting the
dismissal of the complaint.

- On the same day, GSIS filed an Urgent Petition with the Securities and Exchange Commission (SEC)
seeking to restrain Rosete from recognizing, counting and tabulating, directly or indirectly, notionally or
actually or in whatever way, form, manner or means, or otherwise honoring the shares covered by the
proxies in favor of respondents Manuel Lopez, Felipe Alfonso, Jesus Francisco, Oscar Lopez, Christian
Monsod, Elpidio Ibaez, Francisco Giles-Puno or any officer representing MERALCO Management, and to
annul and declare invalid said proxies.

- GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said
proxies during the annual meeting scheduled for the following day. A CDO to that effect signed by SEC
Commissioner Jesus Martinez was issued on the same day the complaint was filed. However, during the
annual meeting held on the following day, Rosete announced that the meeting would push through,
expressing the opinion that the CDO is null and void.

- On May 28, the SEC issued a Show Cause Order (SCO) against private respondents ordering them to
appear before the Commission on May 30 and explain why they should not be cited for contempt. On
May 29, respondents filed a petition for certiorari with prohibition with the Court of Appeals praying that
the CDO and SCO be annulled.

- On 23 July 2008, the Court of Appeals Eighth Division promulgated a decision which dismissed the
complaint of GSIS in the SEC for the reason that the latter’s lack of jurisdiction due to the GSIS’ splitting
of causes of action and forum shopping. Furthermore, the SEC’s undated CDO and the SCO were
declared VOID AB INITIO.

- The appellate court’s decision spawned three different actions docketed with their own case numbers
before this Court. One of them, G.R. No. 183933, was initiated by a Motion for Extension of Time to File
Petition for Review filed by the Office of the Solicitor General (OSG) in behalf of the SEC, Commissioner
Martinez in his capacity as officer-in-charge of the SEC, and Hubert Guevarra in his capacity as Director
of the Compliance and Enforcement Department of the SEC. However, the OSG did not follow through
with the filing of the petition for review adverted to; thus, on 19 January 2009, the Court resolved to
declare G.R. No. 183933 closed and terminated.

- The two remaining cases are docketed as G.R. No. 183905 and 184275. G.R. No. 183905 pertains to a
petition for certiorari and prohibition filed by GSIS, against the Court of Appeals, and respondents Rosete,
Lopez, Alfonso, Francisco, Monsod, Ibaez and Puno, all of whom serve in different corporate capacities
with Meralco or First Philippines Holdings Corporation, a major stockholder of Meralco and an affiliate of
the Lopez Group of Companies. This petition seeks of the Court to declare the 23 July 2008 decision of
the Court of Appeals null and void, affirm the SECs jurisdiction over the petition filed before it by GSIS,
and pronounce that the CDO and the SCO orders are valid. This petition was filed in behalf of GSIS by
the GSIS Law Office; it was signed by the Chief Legal Counsel and Assistant Legal Counsel of GSIS, and
three self-identified Attorney[s], presumably holding lawyer positions in GSIS.

- The OSG also filed the other petition, docketed as G.R. No. 184275 which is one for certiorari under
Rule 65 as indicated on page 3 thereof, and not a petition for review. Interestingly, save for the first page
which leaves the docket number blank, all 86 pages of this petition for certiorari carry a header wrongly
identifying the pleading as the non-existent petition for review under G.R. No. 183933. This petition seeks
the reversal of the assailed decision of the Court of Appeals, the recognition of the jurisdiction of the SEC
over the petition of GSIS, and the affirmation of the CDO and SCO.

ISSUES:

(1) Whether or not the SEC can be private respondents herein.

(2) Whether or not the SEC has jurisdiction over the petition filed by GSIS against private
respondents.

- Whether or not proxy validation is within the powers/jurisdiction of the SEC (part of issue #2)

(3) Whether or not the CDO and SCO issued by the SEC are valid.

HELD:

(1) NO. The SEC, Commissioner Marquez and Guevarra, are not real parties-in-interest to the
dispute and thus bereft of capacity to file the petition. By way of simple illustration, to argue otherwise is
to say that the trial court judge, the National Labor Relations Commission, or any quasi-judicial agency
has the right to seek the review of an appellate court decision reversing any of their rulings.

Under Section 1 of Rule 45, which governs appeals by certiorari, the right to file the appeal is
restricted to a party, meaning that only the real parties-in-interest who litigated the petition for certiorari
before the Court of Appeals are entitled to appeal the same under Rule 45. The SEC and its two officers
may have been designated as respondents in the petition for certiorari filed with the Court of Appeals, but
under Section 5 of Rule 65 they are not entitled to be classified as real parties-in-interest. Under the
provision, the judge, court, quasi-judicial agency, tribunal, corporation, board, officer or person to whom
grave abuse of discretion is imputed (the SEC and its two officers in this case) are denominated only as
public respondents. The provision further states that public respondents shall not appear in or file an
answer or comment to the petition or any pleading therein.

Rule 65 does recognize that the SEC and its officers should have been designated as public
respondents in the petition for certiorari filed with the Court of Appeals. Yet their involvement in the instant
petition is not as original party-litigants, but as the quasi-judicial agency and officers exercising the
adjudicative functions over the dispute between the two contending factions within Meralco. Section 2,
Rule 3 of the 1997 Rules of Civil Procedure provides that every action must be prosecuted or defended in
the name of the real party in interest, that is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. It would be facetious to assume that the
SEC had any real interest or stake in the intra-corporate dispute within Meralco.

(2) NO. The correct answer is not clear-cut, but there is one. GSIS primarily anchors its argument
on two correlated provisions of the SRC. These are Section 53.1 and Section 20.1, which we cite:
 SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The
Commission may, in its discretion, make such investigations as it deems necessary to
determine whether any person has violated or is about to violate any provision of this Code,
any rule, regulation or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory organization, and may require or permit
any person to file with it a statement in writing, under oath or otherwise, as the Commission
shall determine, as to all facts and circumstances concerning the matter to be investigated.
The Commission may publish information concerning any such violations, and to investigate
any fact, condition, practice or matter which it may deem necessary or proper to aid in the
enforcement of the provisions of this Code, in the prescribing of rules and regulations
thereunder, or in securing information to serve as a basis for recommending further
legislation concerning the matters to which this Code relates: xxx (emphasis supplied)
SEC. 20. Proxy Solicitations. 20.1. Proxies must be issued and proxy solicitation
must be made in accordance with rules and regulations to be issued by the Commission;

In private respondents favor, the provisions of law they cite pertain directly and exclusively to the
statutory jurisdiction of trial courts acquired by virtue of the transfer of jurisdiction following the passage of
the SRC. In contrast, the SRC provisions relied upon by GSIS do not immediately or directly establish that
body’s jurisdiction over the petition, since it necessitates the linkage of Section 20 to Section 53.1 of the
SRC before the point can bear on us.

On the other hand, the distinction between proxy solicitation and proxy validation cannot be
dismissed offhand. The right of a stockholder to vote by proxy is generally established by the Corporation
Code, but it is the SRC which specifically regulates the form and use of proxies, more particularly the
procedure of proxy solicitation, primarily through Section 20. AIRR-SRC Rule 20 defines the terms solicit
and solicitation:

The terms solicit and solicitation include:

A. any request for a proxy whether or not accompanied by or included in a form of proxy
B. any request to execute or not to execute, or to revoke, a proxy; or
C. the furnishing of a form of proxy or other communication to security holders under
circumstance reasonably calculated to result in the procurement, withholding or
revocation of a proxy.

It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former
involves the securing and submission of proxies, while the latter concerns the validation of such secured
and submitted proxies. GSIS raises the sensible point that there was no election yet at the time it filed its
petition with the SEC, hence no proper election contest or controversy yet over which the regular courts
may have jurisdiction. And the point ties its cause of action to alleged irregularities in the proxy solicitation
procedure, a process that precedes either the validation of proxies or the annual meeting itself.

Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations
issued by the SEC, such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion
to make such investigations as it deems necessary to determine whether any person has violated any
rule issued by it, such as AIRR-SRC Rule 4. The investigatory power of the SEC established by Section
53.1 is central to its regulatory authority, most crucial to the public interest especially as it may pertain to
corporations with publicly traded shares. For that reason, we are not keen on pursuing private
respondents’ insistence that the GSIS complaint be viewed as rooted in an intra-corporate controversy
solely within the jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy
may animate a disgruntled shareholder to complain to the SEC a corporations violations of SEC rules and
regulations, but that motive alone should not be sufficient to deprive the SEC of its investigatory and
regulatory powers, especially so since such powers are exercisable on a motu proprio basis.
 Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the
regular trial courts with respect to election-related controversies is specifically confined to controversies in
the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or
associations. Evidently, the jurisdiction of the regular courts over so-called election contests or
controversies under Section 5(c) does not extend to every potential subject that may be voted on
by shareholders, but only to the election of directors or trustees, in which stockholders are
authorized to participate under Section 24 of the Corporation Code.

This qualification allows for a useful distinction that gives due effect to the statutory right of the
SEC to regulate proxy solicitation, and the statutory jurisdiction of regular courts over election contests or
controversies. The power of the SEC to investigate violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under
Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the
election of corporate directors, the resulting controversy, even if it ostensibly raised the violation
of the SEC rules on proxy solicitation, should be properly seen as an election controversy within
the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5(c) of Presidential Decree No. 902-A.

Note that Section 6 is immediately preceded by Section 5, which originally conferred on the SEC
“original and exclusive jurisdiction to hear and decide cases” involving “controversies in the election or
appointments of directors, trustees, officers or managers of such corporations, partnerships or
associations.” Thus, such power of the SEC then was incidental or ancillary to the “exercise of
such jurisdiction. The cases referred to in Section 5 were transferred from the jurisdiction of the
SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus, the SEC’s
power to pass upon the validity of proxies in relation to election controversies has effectively
been withdrawn, tied as it is to its abrogated jurisdictional powers. Based on the foregoing, it is evident
that the linchpin in deciding the question is whether or not the cause of action of GSIS before the SEC is
intimately tied to an election controversy, as defined under Section 5(c) of Presidential Decree No. 902-
A.

Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the
solicitation or validation of proxies bore no relation at all to the scheduled election of the board of directors
of Meralco during the annual meeting. GSIS very well knew that the controversy falls within the
contemplation of an election controversy properly within the jurisdiction of the regular courts. Otherwise, it
would have never filed its original petition with the RTC of Pasay. GSIS may have withdrawn its petition
with the RTC on a new assessment made in good faith that the controversy falls within the jurisdiction of
the SEC, yet the reality is that the reassessment is precisely wrong as a matter of law.

(3) NO. The lack of jurisdiction of the SEC over the subject matter of GSIS’ petition necessarily
invalidates the CDO and SDO issued by that body.

This CDO is founded on a determination of an act or practice, which unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to
the investing public. Section 64.1 plainly provides three segregate instances upon which the SEC may
issue the CDO under this provision: (1) after proper investigation or verification, (2) motu proprio, or (3)
upon verified complaint by any aggrieved party. While no lifetime is expressly specified for the CDO under
Section 64, the respondent to the CDO may file a formal request for the lifting thereof, which the SEC
must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing.

The Court of Appeals cited the CDO as having been issued in violation of the constitutional
provision on due process, which requires both prior notice and prior hearing. Yet interestingly, the CDO
as contemplated in Section 53.3 or in Section 64, may be issued ex-parte (under Section 53.3) or without
necessity of hearing (under Section 64.1). Nothing in these provisions impose a requisite hearing before
the CDO may be issued thereunder. Nonetheless, there are identifiable requisite actions on the part of
the SEC that must be undertaken before the CDO may be issued either under Section 53.3 or Section 64.
In the case of Section 53.3, the SEC must make two findings: (1) that such person has engaged in any
such act or practice, and (2) that there is a reasonable likelihood of continuing, (or engaging in) further or
future violations by such person. In the case of Section 64, the SEC must adjudge that the act, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or
prejudice to the investing public.

Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1,
Section 53.3 or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is
apparent that a singular CDO could not be founded on Section 5.1, Section 53.3 and Section 64
collectively. At the very least, the CDO under Section 53.3 and under Section 64 have their respective
requisites and terms.

GSIS was similarly cagey in its petition before the SEC, it demurring to state whether it was
seeking the CDO under Section 5.1, Section 53.3, or Section 64. Considering that injunctive relief
generally avails upon the showing of a clear legal right to such relief, the inability or unwillingness to lay
bare the precise statutory basis for the prayer for injunction is an obvious impediment to a successful
application. Nonetheless, the error of the SEC in granting the CDO without stating which kind of CDO it
was issuing is more unpardonable, as it is an act that contravenes due process of law.

The CDO extended by the SEC fails to provide the needed reasonable clarity of the rationale
behind its issuance. To make matters worse for the SEC, the fact that the CDO was signed, much less
apparently deliberated upon, by only by one commissioner likewise renders the order fatally infirm. The
SEC is a collegial body composed of a Chairperson and four (4) Commissioners. In order to constitute a
quorum to conduct business, the presence of at least three (3) Commissioners is required.

[Sorry, medyo mahaba, if need ny mas maintindihan, eto shorter version from the net:
http://www.philippinelegalguide.com/2015/02/gsis-v-ca.html

Hinabaan ko though kasi baka kung anu-ano iask ni Ma’am. HAHA ]