BAGUIO CITY - The Supreme Court's Second Division on Friday junked a petition of the Government Service Insurance System (GSIS) seeking to uphold a Securities and Exchange Commission (SEC) cease and desist order involving the solicitations of proxies in the annual stockholders' meeting of Manila Electric Company (Meralco) last year.

In the decision penned by Supreme Court Associate Justice Dante Tinga, the court ruled that it is the regional trial court and not SEC that has jurisdiction on questions over the solicitation of proxies in the Meralco stockholders meeting. The Court said 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 may be adjudicated by regular courts under Section 5 (c) of Presidential Decree 902-A.

It noted that SEC only has the power to investigate violations of its rules on proxy solicitation when proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5 of PD-902-A.

"The Court said SEC has the power to investigate violations but when these proxies are solicited in relation to the election of corporate officers, that is within the jurisdiction of the regional trial court," Supreme Court Spokesman Midas Marquez said at the sidelines of the Forum on Environmental Justice in Baguio City.

In its decision, the Court also ruled that the CDO and show cause order issued by SEC were invalid due to lack of jurisdiction over the subject matter of GSIS' petition.

The GSIS first filed a complaint before the Regional Trial Court seeking the declaration of certain Meralco proxies invalid but later manifested dismissal of its complaint. The government agency then filed an urgent petition with the SEC seeking to invalidate the proxies especially those favoring Meralco officers and board members.

The SEC issued a CDO seeking to stop the Meralco annual stockholders' meeting on May 27, 2008, saying that it was necessary to prevent fraud or injury to the investing public. Despite the CDO, the stockholders meeting proceeded as planned prompting the SEC to issue a show cause order against private respondents ordering them to explain why they should not be cited for contempt for rejecting the CDO.

On July 23, 2008, the Court of Appeals Eight Division dismissed the GSIS' petition filed before the SEC and declared the CDO and SCO as null and void. The CA noted that GSIS is guilty of alleged unauthorized practice of law; and referred the matter to the Supreme Court for appropriate sanctions.

The Supreme Court said the SEC erred in granting the CDO without stating which kind of CDO it was issuing, which is a violation of due process. It noted that the CDO did not even mention the length of its term and was only signed by one commissioner--SEC Commissioner Jesus Martinez--which rendered it fatally infirm since the presence of at least three commissioner is required for a quorum.

"The petition filed by the SEC is being expunged because of lack of capacity of the petitioner to bring forth the suit, This means that the SEC, being a nominal party in this case, cannot file the petition by itself. The SEC should have left it to the parties concerned to appeal its decision or perhaps the Solicitor General but not the SEC itself," Marquez explained.

The Court also noted that the GSIS lawyers are not sanctioned for unauthorized practice of law.

Contrary to the assertion of private respondents, the Court said that under Section 47 of Presidential Decree No. 1146, the GSIS has the discretion to assign its cases to the Office of the Government Corporate Counsel (OGCC) for legal action. It said the GSIS Charter is unique because it allocates a role for its internal legal counsel that is in conjunction with or complementary to the OGCC, which is the statutory legal counsel for government-owned and -controlled corporations.

Asked if the recent divestment of GSIS of its Meralco shares has rendered the Supreme Court decision moot and academic, Marquez pointed out that none of the parties concerned made a manifestation about the recent developments in the case.

"The Court decided on the petition based on the circumstances at the time of its filing and whatever supervening events have transpired after it was filed should have been manifested in the Court and brought to the attention of the court. No manifestation was filed so the Court decided in accordance with the petitions and comments filed before the Court," he said.