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CA upholds Meralco, rules SEC lacks jurisdiction on meet

By Benjamin B. Pulta

07/25/2008

The Court of Appeals (CA) ruled as valid giant power distributor Manila Electric Co.’s (Meralco) stockholder meeting last May 27 after it upheld a suit filed by Meralco officials challenging the jurisdiction of the Securities and Exchange Commission (SEC) which ordered a halt to the power firm’s annual meeting.

The Lopez-led manage-ment of Meralco, however, ignored the SEC order, citing lack of jurisdiction and proceeded with the election of the board that was dominated by the Lopez group. Pension fund Government Service Insurance System (GSIS), a major Meralco shareholder, sought a deferment of the meeting due to questions it raised on proxies used in the voting of the members of the power firm’s board of directors.

In a 57-page decision, the CA’s Eighth Division through Associate Justice Vicente Roxas ruled that “the complaint filed by (the) GSIS in the SEC is hereby dismissed due to SEC’s lack of jurisdiction, due to forum shopping by respondent GSIS and due to splitting of action by respondent GSIS.”

The appellate court ruling also declared that SEC’s undated cease and desist order and the SEC’s May 28, 2008 show cause order were void ab initio and without legal effect and “permanently

restrained their implementation.”

Two magistrates, Associate Justices Bienvenido Reyes and Apolinario Bruselas concurred. In its decision the SC ordered that the May 26,2008 complaint filed by GSIS in the SEC is barred from being considered, “out of equitable considerations” with the CA citing that as an election contest in the RTC, because the prescriptive period of 15 days from the May 27,2008, Meralco’s decision to file an election contest in the RTC had already run its course, pursuant to Sec. 3, Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies due to deliberate act of GSIS in filing a complaint in the SEC instead of the RTC.”

The CA also said that GSIS was guilty of “unauthorized practice of law.”

“Allowing the GSIS Law Office to practice law is to allow a corporation, a government-owned and controlled corporation at that, to practice law.

The corporation can create a fiefdom through the practice of law. Only human beings of good moral character who took and passed the bar exams and were admitted by the Supreme Court to the practice of law or any legal partnership of those admitted to the bar, could practice law.

It is unauthorized for any corporation to practice of law.” “Corporations like the GSIS cannot practice law by the mere expedience of hiring lawyers under a “GSIS Law Office’.

The misnomer and practice of labeling the GSIS Law Office as ‘ in house’ law department of the corporation cannot authorize GSIS under the auspices of the GSIS law office to practice law.

The Supreme Court cannot discipline artificial beings like corporations which are mere fictions of law that have no feelings and that have no capacity for respect of the courts and that have no nobility of being respectable just by being human.

“By itself, it can be a monster in the practice of law—and it can get away with it clean.’ the CA underscored.

Under the law, the CA said it is the Office of the Government Corporate Counsel (OGCC) which should have handled the case.

In a statement, GSIS chief legal counsel and spokesman Estrella Elamparo denounced the CA decision as a “patent nullity” . She pointed out that the CA’s Eighth Division decided the case when the case was raffled to and was heard by the CA’s Special Ninth Division.

The GSIS said none of the parties involved in the case was notified of the “mysterious and sudden transfer of the case.”

Elamparo said that Justice Jose Sabio, who chaired the Special Ninth Division, was unceremoniously excluded in the promulgation of the case, which should have stayed in his division in the first place. The GSIS had sought the inhibition of Justice Roxas on account of reports that he met with lawyers of Meralco on the day a temporary restraining order (TRO) was issued by the CA barring the SEC from taking jurisdiction on the GSIS complaint against Meralco. Roxas’ two pending administrative cases were also cited by the GSIS in asking for his inhibition.

The contentious May 27, 2008 stockholder’s meeting was also meant for the election for 11 board seats, two reserved for independent directors as required by law, five to replace the outgoing directors of the Lopez group and four to replace the outgoing directors of the GSIS group.

The GSIS group is composed of government owned and controlled corporations namely GSIS, the Social Security System, Land Bank of the Philippines, Home Development and Mortgage Fund and Philhealth.

For the meeting and election the board of directors activated the nomination and corporate governance committee and appointed Assistant Corporate Secretary Anthony Rosete as acting corporate secretary.

The GSIS then went to the Pasay regional trial court seeking a restraining order against the Meralco board’s moves. When no TRO was issued it then initiated proceedings before the SEC, a move the CA said, which smacks of forum shopping.

Officials of Meralco were earlier given two days, or until May 30 by the SEC to explain why they should not be declared in contempt for ignoring an order from the SEC to stop the counting of proxies in favor of pro-Lopez directors during the firm’s annual stockholders’ meeting .

Petitioners in the case were acting Meralco acting orporate secretary Anthony Rosete, Meralco chairman and chief executive officer Manuel Lopez; Meralco president Jesus Francisco; Meralco board memberFelipe Alfonso, Meralco board member Christian Monsod, Elpidio Ibanez, chief operating officer of First Philippines Holdings Corporation; and Francis Gile Puno, chief finance officer FPHC.

In its show-cause order, the SEC said Lopez, Francisco and Rosete have until noon of May 30 to submit their reply.

SEC secretary Gerard Lucban said the Meralco officials may be fined between P50,000 and P5 million or face imprisonment if they are found to be in contempt of the regulatory agency.

Respondents in the Meralco petition were SEC Commissioner Jesus Enrique Martinez in his capacity as officer-in-charge if the SEC; Hubert Guevarra, in his capacity as director of the SEC Compliance and Enforcement Department and the GSIS.

In their petition, the Meralco officials also ask the appellate court to enjoin the SEC from further taking cognizance of and illegally exercising jurisdiction over the ongoing intra-corporate dispute between Meralco as well as its present management and the GSIS.

According to the petitioners, the CDO issued by the SEC is null and void as the authority to issue such had already been transferred to the regional trial courts which have been designated as special commercial courts under Republic Act 8799 or the ‘Securities Regulation Code.’

“Petitioners are filing this petition with this Honorable Court because they have no other plain,speedy and adequate remedy under the law and because the CDO is a patent nullity, having been issued without or in excess of jurisdiction by Commissioner Jose Enrique Martinez,” the petitioners said.

In addition, the petitioners added that the show cause order was also invalid as it was issued by the SEC which has no jurisdiction over the controversy.

“It would be futile, if not outright foolish for petitioners to try to exhaust their remedies before the SEC with respect to the CDO, the show cause order, or for that matter any related incident because theSEC is without jurisdiction over the controversy at the outset. Moreover, being an incident of the CDO, this show cause order is likewise a patent nullity,” the petitioners argued.

In the controversial stockholders meeting that started at 9 a.m. and lasted until 10:50 p.m., Meralco stockholders had voted five pro-Lopez directors into the board.

They are Lopez, Francisco, Christian Monsod, Felipe Alfonso and Cesar Virata. They received the highest number of votes.

The next highest number of votes went to Garcia and Bernardino Abes, followed by Daisy Arce and Jeremy Parulan from Philippines First Insurance Co. Inc.

Two independent directors, retired Chief Justice Artemio Panganiban and Vicente Panlilio, were also voted to the 11-man board.

The GSIS claimed that former prime minister Cesar Virata illegally occupies the place of Eusebio Tanco in the Meralco board.

Meralco officers also argued that authenticity of the SEC issued CDO is also questionable as its is not dated, does not bear the official seal of the SEC and does not have a docket number. The petitioners also added that they are ‘in no position to verify the validity of the assailed CDO before the SEC.