G.R. Nos. 183905, 16 April 2009

FACTS:

The annual stockholders’ meeting of the Manila Electric Company (Meralco) was scheduled on 27 May 2008. In connection with the annual meeting, proxies were required to be submitted on or before 17 May 2008, and the proxy validation was slated for five days later. In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco became vacant. The board of directors designated Jose Vitug to act as corporate secretary for the annual meeting. However, when the proxy validation began, the proceedings were presided over by respondent Rosete, assistant corporate secretary and in-house chief legal counsel of Meralco.

GSIS, a stockholder of Meralco, filed a complaint with the RTC seeking the nullification of proxies which were validated during the aforementioned proceeding presided over by respondent Rosete. On the very same day, a Cease and Desist Order (CDO) was issued and signed by the SEC Commissioner to restrain the said proxies during the annual meeting. Nevertheless, Rosete continued the meeting despite the foregoing. The SEC then issued a Show Cause Order (SCO) against Rosete ordering them to give explanation why they shoud not be cited with contempt.

On appeal, the CA held that the complaint filed by the GSIS is dismissed for lack of jurisdiction, forum shopping by splitting the causes of action. Thereafter, three different actions arose therefrom, one of which involves the jurisdiction of the SEC over the contested petition as well as the validity of the CDO & SCO.

ISSUES:

Whether the proxy challenge is an election contest cognizable by regular courts.

RULING:

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.
Section 2, Rule 6 of the Interim Rules broadly defines the term “election contest” as encompassing all plausible incidents arising from the election of corporate directors, including:

(1) any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation,
(2) the validation of proxies,
(3) the manner and validity of elections and
(4) the qualifications of candidates, including the proclamation of winners.

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.

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.

On the other hand, the distinction between “proxy solicitation” and “proxy validation” cannot be dismissed offhand. 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.

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