GSIS v. CA (G.R. No. 183905)

Facts:

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. Thus, GSIS moved before the SEC to declare certain proxies, those issued to herein private respondents, as invalid. Private respondents contend that dispute in the validity of proxies is an election contest which falls under the trial court’s jurisdiction. GSIS argues there was no election yet at the time it filed its petition with the SEC, hence no proper election contest over which the regular courts may have jurisdiction.

Issue:

Whether or not the proxy challenge is an election contest cognizable by the regular courts.

Ruling: YES.

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.

Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election-related controversies is specifically confined to “controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations.” Evidently, the jurisdiction of the regular courts over so-called election contests or controversies under Section 5(c) does not extend to every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Section 24 of the Corporation Code.

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.

That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy was engendered by the looming annual meeting, during which the stockholders of Meralco were to elect the directors of the corporation. GSIS very well knew of that fact.

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