GSIS vs CAGR No. 183905 April 16, 2009

Facts:
In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco
became vacant.
The board of directors of Meralco 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 Anthony Rosete, assistant corporate secretary and in-house chief legal counsel of
Meralco.
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. The proceedings were
presided over by Meralco’s assistant corporate secretary and chief legal counsel instead of the
person duly designated by Meralco’s Board of Directors.
GSIS filed a complaint seeking the declaration of certain proxies as invalid. 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 any officer representing MERALCO Management" and to annul and declare invalid
said proxies.
SEC issued a Show Cause Order and the petitioners filed a petition for certiorari with prohibition
with the Court of Appeals. The CA dismissed the complaint for lack of jurisdiction by the SEC.

Issue:
Whether or not the validation of the proxy is within the jurisdiction of SEC as opposed to intra-
corporate controversies within the RTC’s jurisdiction

Held:
NO. The court ruled that jurisdiction is conferred by no other source but law. Both sides have
relied upon provisions of Rep. Act No. 8799, otherwise known as the Securities Regulation Code
(SRC), its implementing rules (Amended Implementing Rules or AIRR-SRC), and other related
rules to support their competing contentions that either the SEC or the trial courts has exclusive
original jurisdiction over the dispute.
Moreover, the distinction between "proxy solicitation" and "proxy validation" holds significance,
with the right of a stockholder to vote by proxy primarily established by the Corporation Code, but
further regulated by the SRC, particularly through Section 20, which dictates the procedure of
proxy solicitation.

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 corporation’s 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.
Section 6 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.