G.R. No. 200620, 18 March 2015

FACTS:

Respondent PHILCOMSAT owns 81% of the outstanding capital stock of Philcomsat Holdings Corporation (PHC). The majority shareholders of PHILCOMSAT are also the seven families who have owned and controlled POTC. The PCGG nominees have aligned with the Nieto family against the group of Africa and Ilusorio (Africa-Bildner), in the ensuing battle for control over the respective boards of POTC, PHILCOMSAT and PHC. During the stockholders’ meeting of POTC & Philcomsat, Locsin, Andal and Nieto, Jr. were also elected as Directors, they did not accept their election. Instead, the Nieto-PCGG group held another stockholders’ meeting for PHILCOMSAT. Immediately after the stockholders’ meeting, an organizational meeting was held, and Nieto, Jr. and Locsin were respectively elected as Chairman and President of PHILCOMSAT. At the same meeting, they issued a proxy in favor of Nieto, Jr. and/or Locsin authorizing them to represent PHILCOMSAT and vote the PHILCOMSAT shares in the stockholders’ meeting of PHC.

Thereafter, the two factions took various legal steps including the filing of suits and countersuits to gain legitimacy for their respective election as directors and officers of POTC and PHILCOMSAT. Africa in his capacity as President and CEO of PHILCOMSAT, and as stockholder in his own right, wrote the board and management of PHC that PHILCOMSAT will exercise its right of inspection over the books, records, papers, etc. pertinent to the business transactions of PHC for the 3rd quarter of 2005, specifically the company’s financial documents.

PHILCOMSAT filed in the RTC a Complaint for Inspection of Books against the incumbent PHC directors and/or officers, to enforce its right under Sections 74 and 75 of the Corporation Code of the Philippines. The RTC dismissed the complaint for lack of jurisdiction. Citing Del Moral v. Republic of the Philippines and Olaguer v. RTC, said court ruled that it is the Sandiganbayan which has jurisdiction considering that plaintiff is a sequestered corporation of the Republic through the PCGG alleging a right of inspection over PHC but which right or authority was being raised as a defense by the defendants.

ISSUES:

1. Whether it is the Sandiganbayan or RTC which has jurisdiction over an intra-corporate controversy;
2. Whether Africa-Bildner group has controlling interest in Philcomsat.

RULING:

1. Upon the enactment of Republic Act No. 8799 (The Securities Regulation Code), effective on August 8, 2000, the jurisdiction of the SEC over intra-corporate controversies and the other cases enumerated in Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court pursuant to Section 5.2 of the law, which provides:

5.2. The Commission’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court; Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra- corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

In the case at bar, the complaint concerns PHILCOMSAT’s demand to exercise its right of inspection as stockholder of PHC but which petitioners refused on the ground of the ongoing power struggle within POTC and PHILCOMSAT that supposedly prevents PHC from recognizing PHILCOMSAT’s representative (Africa) as possessing such right or authority from the legitimate directors and officers. Clearly, the controversy is intra-corporate in nature as they arose out of intra-corporate relations between and among stockholders, and between stockholders and the corporation.

2. Applying the ruling in G.R. No. 141796 and G.R. No. 141804 to Civil Case No. 04-1049, the RTC (Branch 138) correctly concluded that the Nieto-PCGG Group, because it did not have the majority control of POTC, could not have validly convened and held the stockholders’ meeting and election of POTC officers on August 5, 2004 during which Nieto, Jr. and PCGG representative Guy De Leon were respectively elected as President and Chairman; and that there could not be a valid authority for Nieto, Jr. and/or Locsin to vote the proxies of the group in the PHILCOMSAT meeting.

For the same reason, the POTC proxies used by Nieto, Jr. and Locsin to elect themselves respectively as Chairman and President of PHILCOMSAT; and the PHILCOMSAT proxies used by Nieto, Jr. and Locsin in the August 31, 2004 PHC elections to elect themselves respectively as President and Acting Chairman of PHC, were all invalid for not having the support of the majority shareholders of said corporations.

*Case Digest by Meriam Rika R. Wong, JD – 4, Andres Bonifacio College, SY 2019-2020