Jose M. Roy III vs. Chairperson Teresita Herbosa, et al.

G.R. No. 207246

FACTS:

This is a case of special civil action for certiorari under Rule 65 of the Rules of Court seeking to
annul Memorandum Circular No. 8, Series of 2013 (SEC-MC No. 8) issued by the SEC for
allegedly being in violation of the Court's Decision ("Gamboa Decision") and Resolution
("Gamboa Resolution") in Gamboa v. Finance Secretary Teves, G.R. No. 176579 which
jurisprudentially established the proper interpretation of Section 11, Article XII of the
Constitution.

On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of which reads:

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital"
in Section 11, Article XII of the 1987 Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock (common and non-
voting preferred shares). Respondent Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition of the term "capital" in
determining the extent of allowable foreign ownership in respondent Philippine
Long Distance Telephone Company, and if there is a violation of Section 11,
Article XII of the Constitution, to impose the appropriate sanctions under the law.

On May 20, 2013, the SEC, through Chairperson Herbosa, issued SEC-MC No. 8 entitled
"Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the
Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly
Nationalized Activities." Section 2 of SEC-MC No. 8 provides:

Section 2. All covered corporations shall, at all times, observe the constitutional
or statutory ownership requirement. For purposes of determining compliance
therewith, the required percentage of Filipino ownership shall be applied to
BOTH (a) the total number of outstanding shares of stock entitled to vote in the
election of directors; AND (b) the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors.

On June 10, 2013, Roy, as a lawyer and taxpayer, filed the Petition, assailing the validity of
SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and
Resolution and for having been issued by the SEC with grave abuse of discretion. Petitioner Roy
also questions the ruling of the SEC that respondent Philippine Long Distance Telephone
Company ("PLDT") is compliant with the constitutional rule on foreign ownership. He prays that
the Court declare SEC-MC No. 8 unconstitutional and direct the SEC to issue new guidelines
regarding the determination of compliance with Section 11, Article XII of the Constitution in
accordance with Gamboa.

ISSUE:

Whether the SEC gravely abused its discretion in ruling that PLDT is compliant with the
constitutional limitation on foreign ownership.

RULING:

No. The SEC already clarified that it "has not yet issued a definitive ruling anent PLDT's
compliance with the limitation on foreign ownership imposed under the Constitution and
relevant laws and in fact, a careful perusal of SEC-MC No. 8 readily reveals that all existing
covered corporations which are non-compliant with Section 2 thereof were given a period of one
(1) year from the effectivity of the same within which to comply with said ownership
requirement. Thus, in the absence of a definitive ruling by the SEC on PLDT's compliance with
the capital requirement pursuant to the Gamboa Decision and Resolution, any question relative
to the inexistent ruling is premature.
Gamboa Decision
"Capital" in Section II, Article XII of the I987 Constitution refers only to shares of stock entitled
to vote in the election of directors, and thus in the present case only to common shares, and not
to the total outstanding capital stock (common and non-voting preferred shares).
The Gamboa Resolution
Foreign Investments Act of 1991 ("FIA")
Gamboa Resolution put to rest the Court's interpretation of the term "capital"
Full beneficial ownership of stocks, coupled with appropriate voting rights is essential...
reiterates and confirms the interpretation that the term "capital" in Section 11, Article XII of the
1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling
interest requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino
nationals in the voting stocks; it moreover requires the 60-40 percentage ownership in the total
number of outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No.
8 to adhere to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights is required."
Clearly, SEC-MC No. 8 cannot be said to have been issued with grave abuse of discretion
While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full
beneficial ownership of stocks requirement in the FIA, this will not, as it does not, render it
invalid meaning, it does not follow that the SEC will not apply this test in determining whether
the shares claimed to be owned by Philippine nationals are Filipino, i.e., are held by them by
mere title or in full beneficial ownership. To be sure, the SEC takes its guiding lights also from
the FIA and its implementing rules, the Securities Regulation Code.

Jose M. Roy III vs. Chairperson Teresita Herbosa, et al.

FACTS:

This is a Motion for Reconsideration of the November 22, 2016 decision of the Supreme Court.

Roy asserts this Court’s decisions (Gamboa Decision 2011 and Gamboa Resolution 2012)
regarding the Security and Exchange Commission’s (SEC) issuance of Memorandum Circular
No. 8. Series of 2013 and wishes that the Court reverse and set aside The Decision.

ISSUE:

Whether or not the SEC gravely abused its discretion in ruling that PLDT is compliant with the
limitation set for by the Constitution?

RULING:

No. The heart of the issue is the Constitution’s words under Section 11, Art. XII which states that
“No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except citizens of the Philippines xxx at least 60% of whose capital is owned by
such citizens.”

And in the Gamboa Decision, it has been decided that the SEC-MC No. 8 requires that a
corporation requires full and legal beneficial ownership of 60% of the outstanding capital stock,
coupled with 60% of the voting rights must rest in the hands of Filipino nationals.

Subject to The Decision, the SC defines what the words “Full Beneficial Ownership,”
“Beneficial Ownership,” and “Beneficial Owner” mean.

Full beneficial ownership as construed from the Implementing Rules and Regulations of the
Foreign Investment Act of 1991 (FIA-IRR) states that:

“For stocks to be deemed owned and held by the Philippine citizens or Philippine Nationals,
mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of
the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of
which have been assigned or transferred to aliens cannot be considered held by Philippine
citizens or Philippine nationals.”

On the other hand, the Implementing Rules and Regulations of the Securities Regulation Code
(SRC-IRR) states that:

“Any person who, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting power (which includes the power to vote or direct
the voting of such security) and/or investment returns or power (which includes power to dispose
of, or direct the disposition of such security).

Thus, the definition of what a beneficial owner is in the SRC-IRR is in consonance with that of
FIA-IRR’s. However, it is only relevant in resolving as to who is the beneficial owner of each
“specific stock” of the public utility company.

Hence, if the Filipino has the voting power of the specific stock (he can vote the stock or direct
another to vote for him) or the Filipino has the investment power over the specific stock (he can
dispose of the stock or direct another to dispose for him), or both (he can vote and dispose), then
such Filipino is the beneficial owner of that specific stock. Being considered as Filipino, that
specific stock is then to be counted as part of the 60% Filipino ownership requirement under the
Constitution.

However, it is to be noted that the way on how the SEC will classify certain stocks with voting
rights held by a trust fund with the limitation on foreign ownership under the Constitution is
speculative as of the moment.

The Court still awaits the SEC’s prior determination of the citizenship of specific shares of stock
held in trust before the SC fully pass upon a final decision.

Wherefore, the SC resolves to deny the motion with finality.