G.R. No. 187702, 22 October 2014
Omico scheduled its annual stockholders’ meeting and set the deadline for submission of proxies and the validation of proxies. Astra objected to the validation of the proxies issued in favor of Tia, representing about 38% of the outstanding capital stock of Omico. Astra also objected to the inclusion of the proxies issued in favor of Tia and/or Martin Buncio, representing about 2% of the outstanding capital stock of Omico.
Astra maintained that the proxy issuers, who were brokers, did not obtain the required express written authorization of their clients when they issued the proxies in favor of Tia. In so doing, the issuers were allegedly in violation of SRC Rules. Furthermore, the proxies issued in favor of Tia exceeded, thereby giving rise to the presumption of solicitation thereof under said rules. Tia did not also comply with the rules on proxy solicitation, in violation of the SRC.
Despite the objections of Astra, Omico’s Board of Inspectors declared that the proxies issued in favor of Tia were valid.
Whether the SEC has jurisdiction over controversies arising from the validation of proxies for the election of the directors of a corporation.
No. The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the election of corporate directors must be seen as intended to confine to one body the adjudication of all related claims and controversy arising from the election of such directors. For that reason, the afore-quoted 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.
If all matters anteceding the holding of such election which affect its manner and conduct, such as the proxy solicitation process, are deemed within the original and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing jurisdictions between that body and the regular courts becomes frighteningly real. From the language of Section 5 (c) of Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification of voting shares, or the validity of votes cast in favor of a candidate for election to the board of directors are properly cognizable and adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases.
The validation of proxies serves a number of purposes, including determining the existence of a quorum and ascertaining the authenticity of proxies to be used for the election of directors at the stockholders’ meeting. Section 2, Rule 6, of the Interim Rules of Procedure Governing Intra-Corporate Disputes provides that an election contest covers any controversy or dispute involving the validation of proxies, in general. Thus, it can only refer to all the beneficial purposes that validation of proxies can bring about when made in connection with a forthcoming election of directors. Thus, there is no point in making distinctions between who has jurisdiction before and who has jurisdiction after the election of directors, as all controversies related thereto – whether before, during or after – shall be passed upon by regular courts as provided by law. The Court closes with an observation.
*Case Digest by Meriam Rika R. Wong, JD – 4, Andres Bonifacio College, SY 2019-2020