G.R. No. 131715 - Philippine National Construction Corp. vs. Pabion

Case Summary (G.R. No. 131715)

Procedural History

Stockholders Pabion and Ramiro filed a verified petition with the SEC alleging PNCC had not held annual stockholders’ meetings since 1982 and sought an order to call such meeting. The SEC Hearing Officer issued orders deferring determination of PNCC’s status as a GOCC and later denied reconsideration. Petitioners sought SEC en banc review by certiorari; the SEC en banc found grave abuse by the hearing officer, resolved the status issue on the records, and ordered PNCC to call a special stockholders’ meeting. The CA affirmed the SEC en banc. PNCC petitioned the Supreme Court by Rule 45 certiorari, contesting SEC jurisdiction, applicability of AO 59, and SEC’s disposition of the merits without remand.

Key Dates and Orders

SEC en banc Order (October 2, 1996) directing PNCC to call a special stockholders’ meeting within 30 days to elect board members to hold office until March 1997 or until the next stockholders’ meeting. SEC denied reconsideration (April 11, 1997). CA promulgated decision affirming SEC (October 23, 1997) and denied reconsideration (December 2, 1997). Supreme Court decision: petition denied; CA and SEC decisions affirmed.

Issues Presented to the Supreme Court

Whether PNCC is a government-owned or controlled corporation (GOCC).
Whether SEC has jurisdiction to order PNCC to hold a stockholders’ meeting to elect directors.
Whether PNCC is required under law to hold such meetings.
Whether SEC, in certiorari proceedings, may decide merits before the hearing officer receives evidence.

Applicable Law and Administrative Issuances

1987 Constitution, Article XII, Sec. 16 (Congress may create GOCCs by special charter; Congress shall not provide for formation of private corporations except by general law).
Corporation Code (general corporation law) and Section 50 (power of SEC to order stockholders’ meetings when no one is authorized to call the meeting).
PD No. 902-A (confers on SEC original and exclusive jurisdiction over intra‑corporate controversies).
Administrative Order (AO) No. 59 (defines GOCC and “acquired asset corporation” and provides rules on GOCC governance).
Executive Order (EO) 292, the Administrative Code of 1987 (definition of GOCC and authority to further categorize GOCCs).
Proclamation No. 50, AO 64, AO 397 and related privatization instruments (policy and actions regarding acquired assets and privatization).

Facts Found in the Record

Petitioners alleged PNCC had not called stockholders’ meetings since 1982 and that incumbent directors had overheld beyond one-year terms in violation of PNCC’s by‑laws and the Corporation Code. PNCC contended it was a GOCC whose directors are presidential appointees under AO 59 and that SEC lacked competence to determine GOCC status. PNCC also acknowledged that government financial institutions (GFIs) obtained majority equity by debt‑to‑equity conversions under LOI 1295; the exact extent and legal effect of such conversions were disputed in the record but PNCC admitted GFI ownership of at least 76.48% of its equity.

SEC Hearing Officer’s Action and SEC En Banc Ruling

The SEC Hearing Officer ordered a prior determination whether PNCC was a GOCC before proceeding; he declined to resolve that issue and held proceedings in abeyance. On certiorari, the SEC en banc found the hearing officer committed grave abuse of discretion and had jurisdiction to resolve incidental questions (including GOCC status) because the main dispute was an intra‑corporate controversy within SEC’s original and exclusive jurisdiction. The SEC en banc resolved on the record that PNCC, being incorporated under the Corporation Code and having undergone debt-to-equity conversion whereby GFIs became majority stockholders, fell within AO 59’s definition of an “acquired asset corporation,” which AO 59 excludes from GOCC classification. Consequently, SEC ordered PNCC to call the stockholders’ meeting and issue notices per the Corporation Code and PNCC by‑laws.

Court of Appeals Ruling

The CA affirmed SEC, holding PNCC retained its character as a private corporation because of its creation under the general corporation law despite majority GFI ownership. The CA upheld SEC’s exercise of jurisdiction in resolving the intra‑corporate controversy and agreed that a remand to take evidence was unnecessary because the material facts (notably the debt-to-equity conversion and GFI ownership) were judicial admissions or established on the record. The CA held AO 59’s exclusion of “acquired asset corporations” from GOCC status applied, rendering PNCC subject to SEC regulation and able to be ordered to hold meetings pursuant to Section 50 of the Corporation Code.

Supreme Court: Ability of SEC to Determine Corporate Status

The Court held that SEC may determine whether a corporation is a GOCC when exercising its original and exclusive jurisdiction over intra‑corporate controversies. The Court reasoned the status question is one of law to be determined from legal definitions (EO 292 and AO 59) and record facts; the President does not “determine” GOCC status—statutory and administrative definitions do. EO 292’s definition of GOCC allowed further categorization, enabling SEC to distinguish private corporations, GOCCs, and acquired asset corporations for purposes of applying the Corporation Code.

Supreme Court: SEC May Decide Merits in Certiorari Where Records Suffice

The Court rejected PNCC’s contention that SEC en banc exceeded its authority by deciding the merits rather than remanding to the hearing officer. The Court acknowledged the general rule limiting certiorari to questions of grave abuse of discretion, but emphasized well‑recognized exceptions: a reviewing tribunal or agency may decide the merits when undisputed facts on the record permit full disposition. Given PNCC’s admissions (debt-to-equity conversion and documented GFI ownership), SEC en banc properly resolved the controversy on the merits to avoid unnecessary delay.

Supreme Court: SEC Jurisdiction over GOCCs Incorporated Under the Corporation Code

The Court clarified that SEC’s general prohibition does not extend to all GOCCs. SEC lacks jurisdiction over GOCCs created by special charters or special law insofar as the charter governs, but SEC does have jurisdiction over corporations that owe their existence to the Corporation Code—even if the government owns controlling shares. Section 143 of the Corporation Code empowers SEC to implement the Code and regulate entities created under it, including those in which government or its instrumentalities hold controlling shares. Therefore, corporations organized under the Corporation Code remain within SEC’s regulatory reach for intra‑corporate controversies.

Supreme Court: Section 50 of the Corporation Code and Power to Compel Meetings

The Court applied Section 50 of the Corporation Code, which authorizes SEC, upon petition of a stockholder showing good cause, to order the petitioner to call a meeting when no person is authorized to do so. The Court affirmed SEC’s authority under Section 6(f) of PD 902‑A to compel corporate officers to call meetings. Because PNCC’s by‑laws required annual election of directors and the record showed failure to hold meetings for many years, SEC properly ordered a special meeting for the election of directors.

Supreme Court: PNCC Is an Acquired Asset Corporation under AO 59

The Court agreed with SEC and the CA that PNCC falls within AO 59’s “acquired asset corporation” exception and therefore is not treated as a GOCC for AO 59’s appointment rules. AO 59 defines an acquired asset corporation in two classes; one class includes private corporations whose outstanding shares were conveyed to the government or its instrumentalities in satisfaction of debts (e.g., via debt-to-equity conversions or foreclosure). The Court found the GFIs’ conversion of loans into equity in PNCC was sufficient to categorize PNCC as an acquired asset corporation under AO 59. The Court noted AO 59’s Section 18 (dissolution of acquired asset corporations not disposed of within five years) and Proclamation No. 50 and other instruments reflecting a privatization policy and treatment of PNCC as an acquired asset to be disposed of. Official DOJ opinions and presidential correspondence indicating PNCC was declared an acquired asset corporation reinforced the classification.

Supreme Court: No Inconsistency Between AO 59 and EO 292

PNCC argued that AO 59’s definition conflicted with EO 292’s definition of GOCC and that EO 292 (an earlier law) controls. The Court found no fatal inconsistency: AO 59’s definitions apply for the purposes of that administrative order and opera

Case Syllabus (G.R. No. 131715)

Nature of the Case and Relief Sought

Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Court of Appeals Decision dated October 23, 1997 and its Resolution dated December 2, 1997 affirming the Securities and Exchange Commission (SEC) October 2, 1996 Order and SEC April 11, 1997 Resolution denying reconsideration.
Underlying SEC Order (October 2, 1996) directed the President or Chairman of PNCC to call a special stockholders’ meeting within thirty (30) days for the purpose of electing members of the Board to hold office up to March 1997 or until the next stockholders’ meeting.
Private respondents (Ernesto Pabion and Louella Ramiro), claiming to be PNCC stockholders, prayed that SEC order PNCC officers — or authorize petitioners — to call and hold a stockholders’ meeting to elect new directors.

Factual Background

Petition filed with SEC on September 16, 1994 by Pabion and Ramiro, alleging that no stockholders’ meeting had been held since 1982 (twelve to thirteen years), enabling incumbent directors to hold beyond their one-year terms contrary to PNCC By-Laws and the Corporation Code.
Verified petition docketed as SEC Case No. 09-94-4876 and assigned to SEC Hearing Officer Manuel Perea.
PNCC answered asserting: (a) it is a government-owned and/or controlled corporation (GOCC) governed by Administrative Order (AO) No. 59 (February 16, 1988), (b) its board members hold office by presidential appointment under AO No. 59 Article IV, Section 16, and (c) Executive Order No. 399 (1951) exempted GOCCs from holding general stockholders’ meetings.
During pre-trial, parties defined issues: (a) whether PNCC is a GOCC subject to LOI 1295 (1983), AO No. 59 (1988) and EO No. 399 (1951) or governed by its Articles and By-Laws only; and (b) whether PNCC is required to call regular annual stockholders’ meetings.
Petitioners later sought reopening of pre-trial (September 4, 1995) after discovering that supposed 75% government ownership by government financial institutions (GFIs) might be false and requested determination/trial on extent of government ownership.
Hearing Officer Perea (January 30, 1996) ordered parties to secure a ruling/opinion from competent authority whether PNCC is a government corporation before proceeding, stating the matter did not fall within the Commission’s competence; Perea denied reconsideration (April 10, 1996).
Petitioners sought review by SEC en banc via certiorari (SEC-EB No. 495) to nullify Perea’s orders and to direct him to proceed to trial on the merits.

Rulings Below (SEC and Court of Appeals)

SEC en banc (October 2, 1996) held Perea acted with grave abuse of discretion and that SEC had original and exclusive jurisdiction to hear intra-corporate controversies; SEC en banc itself resolved that PNCC, being incorporated under the Corporation Code, was subject to Section 50 of the Corporation Code and that PNCC was an “acquired asset corporation” under AO No. 59 and therefore not a GOCC for purposes of AO No. 59. SEC ordered the calling of a stockholders’ meeting for election of directors.
SEC denied motions for reconsideration, clarification and annulment (April 11, 1997).
Court of Appeals affirmed SEC en banc: concluded PNCC retained the character of a private corporation despite majority ownership by GFIs and PNCC was required under the Corporation Code to hold regular shareholders’ meetings to elect its board.
Court of Appeals emphasized that remand was unnecessary because records sufficed to resolve PNCC’s status and determined the matter was an intra-corporate controversy within SEC’s jurisdiction.

Issues Presented to the Supreme Court

Whether PNCC is a GOCC.
Whether SEC has jurisdiction to order PNCC to hold a stockholders’ meeting to elect board members.
Whether PNCC is required under law to hold a stockholders’ meeting for that purpose.
Whether SEC, in certiorari proceedings, can rule on the merits of a case even before the hearing officer has received evidence.

Applicable Statutes, Administrative Issuances, and Key Provisions Relied Upon

Corporation Code: Section 50 (authority of SEC to direct stockholder to call a meeting) and Section 143 (rulemaking/implementation authority of SEC).
PD No. 902-A (as amended): Section 5(b) conferring SEC original and exclusive jurisdiction over intra-corporate controversies; Section 6(f) empowering SEC to compel officers to call stockholders’ meetings.
AO No. 59 (Administrative Order No. 59, Feb. 16, 1988): Definitions in Section 2 including (a) GOCC and (b) “acquired asset corporation”; Section 16 (governing boards and appointment by the President) and Section 18 (dissolution of acquired asset corporations).
Executive Order (EO) No. 292, The Administrative Code of 1987 (definitions of GOCC in Section 2(13)).
Proclamation No. 50 (policy on privatization and definition of “assets” to include government institutions; Committee on Privatization).
AO No. 64, AO No. 397, PD No. 2029 (referenced in context of privatization and acquired asset definition).
SEC Revised Rules and Procedure, Rule XV, Sec. 1 (petition for review on certiorari to SEC en banc).
Rule 65, Sec. 1, Rules of Court (doctrine on certiorari reviewed by parties).

Supreme Court’s Legal Conclusions (Primary Holdings)

Petition is without merit; Court affirms Court of Appeals and SEC en banc decisions.
SEC has jurisdiction over corporations organized pursuant to the Corporation Code even if majority or controlling shares are owned by the government; SEC may order the holding of a stockholders’ meeting for election of the corporate board.
SEC may determine, in the exercise of its original and exclusive jurisdiction over i