GOVERNMENT SERVICE, INSURANCE SYSTEM v. THE HON.

COURT OF
APPEALS, (8TH DIVISION), ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE
B. ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L.
IBAEZ, and FRANCIS GILES PUNO
G.R. No. 183905, April 16, 2009, J. Tinga

The Court of Appeals dismissed the GSIS complaint seeking the declaration
of certain proxies as invalid, due to SECs lack of jurisdiction. The Supreme Court
affirmed. 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.

FACTS:

In connection with the annual stockholders meeting of the Manila Electric

Company (Meralco) scheduled on May 27, 2008, proxies were required to be
submitted on or before 17 May 2008, and the proxy validation was slated for five
days later, or 22 May. In view of the resignation of Camilo Quiason, the position of
corporate secretary of Meralco became vacant. On 15 May 2008, the board of
directors of Meralco designated Jose Vitug to act as corporate secretary. However,
when the proxy validation began on 22 May, the proceedings were presided over by
respondent Anthony Rosete assistant corporate secretary and in-house chief legal
counsel of Meralco. Private respondents nonetheless argue that Rosete was the
acting corporate secretary of Meralco. Petitioner Government Service Insurance
System (GSIS), a major shareholder in Meralco, was distressed over the proxy
validation proceedings. GSIS filed a complaint with the Regional Trial Court (RTC) of
Pasay City seeking the declaration of certain proxies as invalid. Three days laterGSIS
filed a Notice manifesting the dismissal of the complaint as it seeks to file an Urgent
Petition with the Securities and Exchange Commission (SEC) 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. A Cease and Desist Order (CDO) was issued by SEC Commissioner
Jesus Martinez. Rosete, announcing that the CDO is null and void was thereby issued
by the SEC a Show Cause Order (SCO) to explain why they should not be cited in
contempt. The respondents then filed a petition for certiorari with prohibition before
the Court of Appeals, praying that the CDO and the SCO be annulled. CA dismissed
the GSIS complaint due to SECs lack of jurisdiction and declared the CDO and SCO
null and void.
ISSUE:

Whether SEC has jurisdiction over the proxy challenge raised by GSIS?

RULING:

NO. 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 (controversies in the election or
appointments of directors, trustees, officers or managers of such corporations,
partnerships or associations)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.

The right of a stockholder to vote by proxy is generally established by the

Corporation Code, but it is the Securities Regulation Code (SRC) which specifically
regulates the form and use of proxies, more particularly the procedure of proxy
solicitation, primarily through Section 20. AIRR-SRC Rule 20 defines the terms solicit
and solicitation. The terms solicit and solicitation include: a.) any request for a proxy
whether or not accompanied by or included in a form of proxy;
b.) any request to execute or not to execute, or to revoke, a proxy; or
c.) the furnishing of a form of proxy or other communication to security holders
under circumstance reasonably calculated to result in the procurement, withholding
or revocation of a proxy.