See - http://sc.judiciary.gov.ph/pio/news/2012/10/10151202.php
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The Supreme Court, voting 10-3, has denied with finality the motions for reconsideration of its June 28, 2011 decision that directed the Securities and Exchange Commission (SEC) to investigate the Philippine Long Distance Telephone Co. (PLDT) for possible violation of the constitutional limit on foreign ownership in utilities.
In a 51-page resolution penned by Senior Justice Antonio T. Carpio, the Court En Banc declared that it “no further pleadings shall be entertained” in the case.
Joining Senior Justice Carpio in his ponencia were Chief Justice Maria Lourdes P. A. Sereno and Justices Teresita J. Leonardo-De Castro, Arturo D. Brion, Diosdado M. Peralta, Lucas P. Bersamin, Mariano C. Del Castillo, Martin S. Villarama, Jr., Jose Portugal Perez, and Jose Catral Mendoza.
Justices Presbitero J. Velasco, Jr. wrote a dissenting opinion and was joined by Justice Bienvenido L. Reyes. Justice Roberto A. Abad wrote a separate dissenting opinion.
Justice Estela M. Perlas-Bernabe did not take part due to prior participation in a related case.
The Court clarified that it did not decide, and in fact refrained from ruling on the question of whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the 1987 Constitution as such question indisputably calls for a presentation and determination of evidence through a hearing, which is generally outside the province of its jurisdiction, but well within the SEC’s statutory powers. The Court thus limited its decision on the purely legal and threshold issue on the definition of the term ‘capital’ in Section 11, Article XII of the Constitution and directed the SEC to apply such definition in determining the exact percentage of foreign ownership in PLDT.
The Court found that from the deliberations of the Constitutional Commission, it was clear that the term “capital” refers to controlling interest of a corporation. The Court held: “As we held in our 28 June 2011 Decision, to construe broadly the term ‘capital’ as the total outstanding capital stock, treated as a single class regardless of the actual classification of shares, grossly contravenes the intent and letter of the Constitution that the ‘State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.’”
The Court further held that the PLDT is only an indispensable party insofar as other issues, particularly factual questions are concerned.
It also held that SEC was properly impleaded in this case. It noted that SEC has expressly manifested that it will abide by the Court’s decision and defer to the Court’s definition of the term “capital” in Section II, Article XII of the Constitution. Further, the SEC entered its special appearances in this case and argued during the Oral Arguments, indicating its submission to the Court’s jurisdiction. It Thus the Court found that there exists no legal impediment against the proper and immediate implementation of its directive to the SEC. “For its part, PLDT must be impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual issues will be thoroughly threshed out and resolved,” added the Court.
“Thus, there is no dispute that it is only after the SEC has determined PLDT’s violation, if any exists at the time of the commencement of the administrative case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other words, once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds after due hearing that, at the start of the administrative case or investigation, there is an existing violation of Section 11, Article XII of the Constitution. Under prevailing jurisprudence, public utilities that fail to comply with the nationality requirement under Section 11. Article XII and RA 7042, the Foreign Investments Act of 1991 (FIA) can cure their deficiencies prior to the start of the administrative case or investigation,” the Court ruled.
The Court noted that the 1935, 1973, and 1987 Constitutions have the same 60 percent Filipino ownership and control requirement for public utilities like PLDT. It ruled that any deviation from this requirement necessitates an amendment to the Constitution as exemplified by the Parity Amendment.
The Court held that the 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino citizens, or (2) corporations, or associations at least 60 percent of whose ‘capital’ is owned by Filipino citizens. “In other words, under Section 11, Article XII of the 1987 Constitution, to own and operate a public utility a corporation’s capital must at least be 60 percent owned by Philippine nationals,” held the Court.
RA 7042, like all its predecessor statutes, clearly defines a “Philippine national” as a Philippine citizen, or a domestic corporation at least “60% of the capital stock outstanding and entitled to vote” is owned by Philippine citizens, noted the Court.
The Court explained that the right to elect directors, coupled with beneficial ownership, translates to effective control. The Court stressed that its assailed decision “declares that the 60 percent Filipino ownership required by the Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation.” It further held that it was “imperative that such requirement apply uniformly and across the board to all classes of shares, regardless of nomenclature and category, comprising the capital of a corporation. Under the Corporation Code, capital stock consists of all classes of shares issued to stockholders, that is, common shares as well as preferred shares, which may have different rights, privileges or restriction as stated in the articles of incorporation.”
The Court further explained that if a corporation, engaged in a partially nationalized industry, issues a mixture of common and preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the preferred non-voting shares must be owned by Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares.
In its June 28, 2011 decision, the Court ruled that the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and, in the present case, only to common shares and not to the total outstanding capital stock comprising both common and non-voting preferred shares.
The SEC was thus directed to apply the Court’s definition of the term “capital” in determining the extent of allowable foreign ownership in PLDT and to impose the appropriate sanctions under the law if there is any violation of sec. 11, Art. XII of the Constitution.
Justice Velasco in his dissenting opinion opined that PLDT should be given time to undertake the necessary measures to make its capital structure compliant, and the SEC should formulate appropriate guidelines and supervise the process. He added that SEC should also adopt rules and regulations to implement the prospective compliance by all affected companies with the new ruling on the interpretation of Sec. 11, Art. XII of the Constitution.
For his part, Justice Abad opined that Sec. 11, Art. XII already provides limitations on foreign participation in public utilities, hence, the Court need not add more by further restricting the meaning of the term “capital” when none was intended by the framers of the 1987 Constitution. He wrote that the authority to define “capital” in the said provision belongs to Congress as part of its policy making power. Granting otherwise, he opined that “capital” encompasses the entirety of a corporation’s outstanding capital stock and that the Court can simply adopt such interpretation of Constitution Commission by Fr. Joaquin Bernas and Dr. Bernardo M. Villegas. (GR No. 176579, Gamboa v. Sec. Teves, October 9, 2012)
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