SEC Adm. Case No. 12-05-70 E.M. Ramos & Sons, Inc. et. al.

SEC Bldg. EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Republic of the Philippines

JANUArIO B. RAMOS. VICTORIA R. TANJUATCO and ROGERIO H. CRISTOBAL. E.M.RAMOS & SONS,INC. Petitioners.

versus SEC En Banc Case No. 12-05-70

MISSION, DIRECTOR BENITO A. CATARAN IN HIS CAPACITY AS DIRECTOR QF MONItORING dEPARtMENt OF THE SECURItIES ANd eXCHAngE COM- THE COMPANY REGISTRATION AND Respondent.

DECISION

respondent, Company Registration and Monitoring Department ('CRMD", for brevity) Director Benito A. Cataran dated 22 November 2005. ("EMRASON" for brevity), Januario B. Ramos, Victoria R. Tanjuatco, and Rogerio H. Escobal (hereinafter collectively referred to as "Petitioners") assailing the letter of Before the Commission is a Petition for Review filed by E.M. Ramos & Sons, Inc.

"invoking the power of the Commission to regulate, investigate or supervise activities of Alleging violations of the Corporation Code, petitioners wrote a letter to respondent

penalize any violations thereof." persons to ensure compliance with the provisions of the Corporation Code and/or to

subscribe to additional shares from ihe Travellers Insurance & Surety Corporation" The controversy arose when petitioners received a Notice of Pre-Emptive Rights to

wherein members of the Board of Directors were elected and the: stockholders approved ("TISCO", for brevity) following TISCO's Annuai Stockholders' meeting on 22 July 2005

2 Letter of Petitioner to Respondent Benito Cataran, November 18, 2005, p. 2. 1 Batas Pambansa Bilang 68 (1980) SEC Registration No. 25369

SEC En Banc Case No. 12-05-70 Page 2 of 6 E... Ramos & Sons, Inc., et'".-.vs Director Benito Cataran

the proposed increase in capital stock from Fifty Million Pesos (P50,000,000.00) to Three Hundred Million Pesos (P300,000,000.00)." Based on the minutes of the said meeting, the increase in capital stock was to comply with the requirements of the proposed Department Order No. 1-2005 for requiring all non-life insurance companies to have authorized capital stock of Three Hundred Million Pesos as required by the Insurance Commission.

own at least Two Hundred Seventy Four Thousand One Hundred Twenty Four (274,124) could not have been enough stockholders to constitute a quorum at the stockhoiders' meeting, much less meet the two-thirds requirement under the law to approve the increase of TISCO's capital stock. shares out of the Five Hundred Thousand (500,000) shares of TISC0, and thus, there Petitioners assailed the proceedings of the Stockholders' Meeting, claiming that they

Hundred Thousand (200,000) shares of stocks in Trade Expositions Center, Inc.5 ("TECI"] is not authorized to manage or contro! TISCo. Petitioners prayed that respondent issue a cease and desist order directing TISCO to refrain from acting upon the assignment of for brevity) in the name of EMRASON, and assert that TECI, the transferee of the shares shares from EMRASON to TECI.7 Petitioners also raised issues regarding the unauthorized transfer of _the Two

In the letter dated 22 November 2005, respondent replied:

"Upon perusal, we found out that the issues involve a determination of the iegality of the election of the members of the Board of Directors held during the stockhoiders meeting and the approval of the increase in authorized capital stock, Regulation Code (SRC) and Presidential Decree 902-A." which are intra-corporate controversies -- within the purview of Section 5 of PD 9o2-A xxx thus, the Securities and Exchange Commission cannot take cognizance of, as the same was transferred to the regular courts pursuant to the Securities

of any document submitted before it and to approve the same if found to be compliant and desist order directing TISCO to refrain from acting upon the assignment to TECI of TISCO's application for amendment of the articles of incorporation and increase of with the requirements of the law."? Anent the third request for the issuance of a cease EMRASON's shares in TISCO, respondent informed petitioners that the matter had been authorized capital stock because it is "ministerial upon the Commission to accept the filing Respondent also clarified that the CRMD cannot grant petitioners' request to deny

investigation. referred to the Compliance: and Enforcement Department' for proper evaluation and

et al. vs Emerito Ramos, Jr., et al (Civil Case No. 00-15432) pending before. the Regional Trial Court of 8 Letter to Petitioner, 22 November 2005. 4 Petition, Annex "B." 7 Letter to Respondent, 18 November 2005. 9 Now Enforcement and Prosecution Department Makati City, Branch 138 SEC Registration No. A200204103 The management and controi of EMRASON is the subject of a pending dispute in E.M. Ramos & Sons, Inc

Page 3 of 6 E.M. Ramos & Sons, Inc., et -..vs Director Benito Cataran SEC En Banc Case No. 12-05-70

Hence, the instant Petition for Review.

that the Commission cannot take cognizance of the alleged violations committed by the members of TISCO's Board of Directors. The main issue to be resolved is whether or not Respondent Cataran erred in ruling

We rule in favor of respondent.

Directors/Trustees of corporations, or of partnerships, or of other associations, or of their stockholders, officers, or partners, including any fraudulent devices, schemes or representations, in violation of any law or rules and regulations administered and enforced by the Commission." An intra-corporate dispute involves "any act or omission of the Board of

the sound judicial principle that jurisdiction over the subject matter is conferred by law is entitled to all or some of the claims asserted therein.11 and is determined by the allegations of the complaint irrespective of whether the plaintiff To determine which body has jurisdiction over the present controversy, we rely on

and to hear and decide cases involving the following: Act" is worth revisiting for clarity. Prior to the enactment of the Securities and Regulation Code12, the Commission was vested with original and exclusive jurisdiction over complaints Section 5 of Presidential Decree 902-A, as amended, or the "SEC Reorganization

may be detrimental to the interest of the public and/or stockholders, partners, associates, its officers or partners,ramounting to fraud and misrepresentation which members of associations or organizations registered with the Commission; "(a) Devices or schemes employed by or any acts of the board of directors, business

corporation, partnership or association of which they are stockhoiders, members or associations, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such (b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the entity:

(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnership or associations;

to this Decree." possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases -where the corporation, partnership or association has no sufficient assets to cover its liabilities but is under the management of a Rehabilitation Receiver or Management Committee created pursuant (d) Petition of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association

11 Saura, et al. v. Saura, et ai., G.R. No. 135159, Septemher 1, 1999. 10 Fabia vs Court of Appeals, G.R. No. 132684, August 20, 2001. 12 Republic Act No. 8799 (2000).

E.M. Ramos & Sons, Inc:, et 'c'vs Director Benito Cataran SEC En Banc Case No. 12-05-70 Page 4 of 6

In resolving these disputes, the Supreme Court has stated on occasion: "The

Regional Trial Courts."13 Securities Regulation Code, has amended PD 902-A, and transferred the jurisdiction of the resolution of the .matter in dispute. However, it should be noted that RA 8799, the SEC over intra-corporate cases to the courts of general jurisdiction or the appropriate doctrine of primary jurisdiction exhorts us to refer the instant case to the SEc for its

and decided by the Branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy. To determine whether a case involves an intra-corporate controversy, to be heard

association and the State insofar as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the partnership relations between any or all of the parties and the corporation, partnership or members or associates, respectively; and between such corporation, partnership or association of which they are stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, regulation of the corporation.i The first element requires that the controversy must arise out of intra-corporate or

stockhoiders' meeting that not only elected the members of the Board of Directors, but recapitulate, petitioners are questioning the legality of the quorum constituting the also approved the increase of TISCO's authorized capital stock. Petitioners claim that the Clearly, the issues raised by petitioners are intra-corporate in nature. To

of EMRASON's shares to TECI, c!aiming it is a circumvention of a pending civil case. petitioners did not participate in the meeting. Petitioners further question the assignment requirement to constitute a quorum couid not have been possible as EMRASON and

EMRASON does not appear among the company's stockholders while TECI owns 423,433 53,510 shares or 10.7% of TISCO's total outstanding stock. shares. On the other hand, the .other petitioners' total stockholdings amount to only A perusal of TISCO's General Information Sheet ("GIS")1 reveals that petitioner

As respondent correctly pointed out: "Indirectly, Petitioners' letter presented an

over which the Commission has no jurisdiction."7 issue on ownership of shares of stock, a matter which is intra-corporate in nature, and

be threshed out in the appropriate proceeding before the Regional Trial Court. The determination of who the legitimate owners of the shares of stock are should

16 Attachment "6" of Comment on the Petition, dated August 19, 2005. 13 Fabia vs. Court of Appeals, et al., G.R. No. 132684, August 20, 2001. 17 Comment on the Petition, p. 7. 14 Speed Distributing Corp., et al. vs Court of Appeals, G.R. No. 149351, March 17, 2004. 5 The Intestate Estate of Alexander "T. Ty vs. Court of Appeais, G.R. No. 112872, April 19, 2001.

Page 5 of 6 SEC En Banc Case No. 12-05-70 E.M. Ramos & Sons, Inc., et ... vs Director Benito Cataran

The underiying principle of the rule on exhaustion of administrative remedies rests on the presumption that the administrative agency, if afforded a complete chance to pass upon jurisdiction lies. the matter, will decide the same correctly.18 However, the doctrine of exhaustion of administrative remedies is not applicable in this case, as the law is very clear on where Petitioners likewise invoke the principle of exhaustion of administrative remedies

investigative powers of the Commission, their efforts to reframe or mask the intra- corporate nature of the controversy must fail. While petitioners claim that they are only invoking the supervisory, regulatory, and

(Supervision Over Registered Corpcrations)19 which clarifies the "extent of the supervisory powers of the Securities and Exchange Commission (SEC) over all registered corporations." Respondent cites the provisions of SEC. Memorandum Circular No. 11-2003

of its supervision and monitoring shall be limited to their compliance with the Corporation Code, i.e.: "2. For all other business operations of companies with certificates of registration with the SEC as corporations but not requiring a secondary license from the SEc. the extent

b. submission of General Information Sheets (GIS): a. submission of financial statements; c. compliance with the provisions in their by-iaws on: ii. qualifications, compensation of directors i. number of directors I. holding of meetings

f. other provisions of the Code requiring submission of documents to effect XXXx compliance." XX

as Respondent clarified, it becomes a ministerial duty on the part of the Commission to Code, the powers of the Commission are now limited to the enumerated items. Moreover, give due course to any filing or application which is regular. on its face. In other words, pursuant to the changes introduced by the Securities Regulation

dealings. of the public with this Commission.2o While the CRMD has to pass upon and exercise its discretionary power for determining the legitimacy of the purpose of the approval. There is a presumptior of regularity of the documents presented to or of the and regular on their face. amendment or to ensure that the amendment does not fall under any of the grounds for disallowance in Section 17 of the Corporation Code, such exercise of discretionary power does not hold when the documents that are presented to the Commission are complete The CRMD cannot go beyond the four corners of any applications submitted for its

18 University of the Philippines v. Catungal, Jr., et al., G.R. No. 121863, May 5, 1997. 20 Comment on the Petition, p. 5. I Attachment "3", Comment on the Petition.

E.M. Ramos & Sons, Inc., et a..... Director Benito Cataran SEC En Banc Case No. 12-05-70 Page 6 of 6

WHEREFORE, premises considered, the instant petition is hereby DISMISSED for LACK OF MERIT. Let a copy of this DECISION be furnished to the Company Registration and Monitoring Department for its information and appropriate action.

So ordered.

Mandaluyong City, 6 May 2010.

FE B. BARIN a.mmJ

Chairperson

Ma. JuAnita/E. cueTo Commissioner Commissioner RAUL J. PALABRICA

MANUEL B. GAITE Commissioner LAdIO M. JAlA T Hissioner