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

GR No. 207246

April 18, 2017

Digested by: Ivan Earl B. Zapanta

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Petitioner: Jose M. Roy III

Petitioners-in-Intervention: Wilson Gamboa, Jr., Daniel Cartagena, John Warren Gabinete,

Antonio Pesina, Modesto Mamon, and Gerardo Erebaren.

Respondent: Chairperson Teresita Herbosa, The Securities and Exchange Commission, and
Philippine Long Distance Telephone Company

Respondent-in-Intervention: Philippine Stock Exchange, Inc.

Ponente: Caguioa, J.

Topic: Nationality, Citizenship and Foreign Equity (Place of Incorporation Test, Control Test &
Grandfather Rule)

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Doctrine: Same with the decision of the Supreme Court in The Decision, SEC-MC No. 8 is valid
as it does not violate the Constitution’s ownership of corporations (60/40 rule).

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Facts: This is a Motion for Reconsideration of the November 22, 2016 decision of the Supreme
Court entitled: The Decision.

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 whishes that the Court reverse and set aside The Decision.

NOTE: JUST FOR CLARIFICATION, I WILL INCLUDE BELOW THE DIGEST OF THE
DECISION FOR FURTHER UNDERSTANDING OF THIS CASE.

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