PDIC v.
Manu GIDWANI granting PDIC's motion for reconsideration (Caparas
GR No. 234616
June 20, 2018
THIRD DIVISION (Velasco, Jr., J.)
Facts:
Pursuant to several resolutions of the Monetary Board (MB)
of the BSP, a number of the rural banks owned and
controlled by the Legacy Group of Companies (Legacy
Banks, for brevity) were ordered closed and thereafter
placed under the receivership of Philippine Deposit
Insurance Corporation (PDIC).
The spouses Gidwani, and eighty-six (86) other individuals,
represented themselves to be owners of four hundred
seventy-one (471) deposit accounts with the Legacy Banks,
and filed claims with PDIC.
The claims were processed and granted, resulting in the
issuance of six hundred eighty-three (683) Landbank
checks in favor of the 86 individuals, excluding the spouses
Gidwani, in the aggregate amount of over 98 million Pesos.
The individuals did not deposit the crossed checks in
their respective bank accounts. Rather, the face value
of all the checks were credited to a single bank
account with Rizal Commercial Banking Corporation
(RCBC) owned by Manu Gidwani.
According to PDIC, it only discovered the foregoing
circumstance when the checks were cleared and returned to
it. This prompted PDIC to conduct an investigation on the
true nature of the deposit placements of the 86 individuals.
Based on available bank documents, the spouses Gidwani
and the 86 individuals maintained a total of 471 deposit
accounts (aggregating to over 118 million Pesos) with the
different Legacy Banks; and 142 of these accounts
(amounting to over 20 million Pesos) were in the names of
helpers and rank-and-file employees of the Gidwani
spouses.
Thus, according to PDIC, most of them if not all, did not
have the financial capacity to deposit the amounts recorded
under their names, let alone make the deposits in various
Legacy Banks located nationwide. PDIC also noted that
advance interests on several of the deposits were paid to
the Gidwani spouses even though they are not the named
owners of the accounts.
Pursuant to its mandate to safeguard the deposit insurance
fund against illegal schemes and machinations, PDIC lodged
a criminal complaint against the Gidwani spouses and the
86 other individuals, before the Department of Justice
(DOJ) Task Force on Financial Fraud (DOJ Task Force) for:
1. Estafa through falsification under Art. 315(2)(a) in
relation to Art. 172(1) and 171(4) of the Revised Penal
Code; and
2. Money laundering as defined in Section 4(a) of AMLA.
On January 14, 2014, the DOJ Task Force promulgated a
Resolution dismissing the Complaint. PDIC's motion for
reconsideration from the said Resolution was likewise
denied.
Unperturbed, PDIC interposed a petition for review
with the Office of the Secretary of Justice (SOJ).
On September 11, 2015, then Undersecretary of Justice
Jose F. Justiniano issued a Resolution (Justiniano
Resolution) denying PDIC's appeal.
On June 3, 2016, then SOJ Emmanuel Caparas, however,
overturned the Justianio Resolution through his own ruling
Resolution). In his Resolution, then SOJ Caparas directed
the Prosecutor General to file the relevant Informations
against the spouses Gidwani and the 86 other individuals.
Manu Gidwani immediately elevated the matter to the Court
of Appeals, ascribing grave abuse of discretion on the part
of SOJ Caparas in finding probable cause to charge him with
estafa and for violation of the AMLA.
The Court of Appeals reversed the decision of SOJ
Caparas. The CA ruled that SOJ Caparas gravely abused
his discretion when he reversed and set aside the earlier
resolutions of the DOJ Task Force and of Undersecretary
Justiniano. Accordingly, due to lack of probable cause, the
appellate court ordered the dismissal of the criminal
complaint against Gidwani, and the cancellation of the
corresponding Information/s.
PDIC’s motion for reconsideration of the CA’s decision
having been denied, it elevated the case to the Supreme
Court.
Issue: Did the then SOJ Caparas gravely abuse his
discretion in finding probable cause against Manu Gidwani,
in connection with the allegations in PDIC’s criminal
complaint? NO.
HELD: NO
Jurisprudence elucidates that the elements of estafa or
swindling under paragraph 2(a) of Article 315 of the RPC
are the following:
1. That there must be a false pretense, fraudulent act or
fraudulent means;
2. That such false pretense, fraudulent act or fraudulent
means must be made or executed prior to or
simultaneously with the commission of the fraud;
3. That the offended party must have relied on the false
pretense, fraudulent act, or fraudulent means, that is, he
was induced to part with his money or property because of
the false pretense, fraudulent act, or fraudulent means; and
4. That as a result thereof, the offended party suffered
damage.
According to PDIC:
1. the crime charged (estafa or swindling under paragraph
2(a) of Article 315 of the RPC) was committed when the 86
other individuals fraudulently declared that they are the
bona fide owners of 471 deposits with the legacy banks;
2. the purported depositors, in conspiracy with Manu,
falsified official documents by making the untruthful
statement of ownership in their deposit insurance claims;
3. it (PDIC) relied on the representations of the claimants
when it released to them the deposit insurance proceeds
amounting to over 98 million Pesos, of which over 97
million Pesos was deposited to the RCBC account of Manu
Gidwani; and
4. the government suffered damage when PDIC discovered
upon investigation that Manu was the sole beneficial owner
of the bank accounts.
The [Court] disagrees with the CA’s ruling that "PDIC failed
to prove that Gidwani is the owner of all subject bank
accounts or financed the same" and, as such, Manu could
not be considered to have committed false pretenses or
misrepresentations against PDIC.
SC: Manu did not commit false pretenses or
msirepresentations against PDIC.
It must be recalled that the criminal case is still in the stage
of preliminary investigation. Under Rule 112, Section 1 of
the Rules of Court, a preliminary investigation is "an inquiry
or proceeding to determine whether there is sufficient
ground to engender a well-founded belief that a crime has
been committed and the respondent is probably guilty
thereof, and should be held for trial."
The investigation is advisedly called preliminary, because it
is yet to be followed by the trial proper in a court of law.
The occasion is not for the full and exhaustive display of the
parties since the function of the investigating prosecutor is
not to determine the guilt or innocence of an accused.
In this case, the PDIC reportedly discovered that there was
only one beneficial owner of the 471 bank accounts with the
Legacy Banks (purportedly owned by 86 other individuals) –
respondent Manu.
PDIC reportedly discovered that 142 of these 471 accounts,
with the total amount of over 20 million Pesos, were in the
names of helpers and rank-and-file employees of the
Gidwani spouses who do not have the financial capacity to
deposit the amounts recorded under their names. Moreover,
the helpers and rank-and-file employees who reside and are
employed in Bacolod City maintained bank accounts in
Legacy Banks located in different parts of the country
(outside of Bacolod City).
SEC VS LAYGO
Facts: SEC issued the corresponding New Rules on the
Registration and Sale of Pre-Need Plans (New Rules) to
govern the pre-need industry prior to the enactment of R.A.
No. 9829, otherwise known as the Pre-Need Code of the
Philippines (Pre-Need Code).
It required from the pre-need providers the creation
of trust funds as a requirement for registration.
As defined in Rule 1.9 of the New Rules, "'Trust Fund'
means a fund set up from planholders' payments, separate
and distinct from the paid-up capital of a registered pre-
need company, established with a trustee under a trust
agreement approved by the SEC, to pay for the benefits as
provided in the pre-need plan."
Legacy (pre-need company) entered into a trust
agreement with the Land Bank of the Philippines
(LBP).
Subsequently, Legacy became a subject of a petition for
involuntary insolvency by private respondents in their
capacity as planholders.
It was declared insolvent by the RTC and it also ordered
Legacy to submit an inventory of its assets and liabilities.
SEC opposed the inclusion of the trust fund in the inventory
of corporate assets on the ground that to do so would
contravene the New Rules which treated trust funds as
principally established for the exclusive purpose of
guaranteeing the delivery of benefits due to the
planholders.
Despite the opposition of the SEC, Judge Laigo ordered the
insolvency Assignee to take possession of the trust fund.
RTC stated that the trust fund could be withdrawn by the
Assignee to be used for the expenses he would incur in the
discharge of his functions and to be distributed among the
creditors who had officially filed their valid claims with the
court.
The fact these individuals stated/reported Manu Gidwani's
office or business address as their own further arouses
serious suspicion on the true ownership of the funds
deposited. It gives the impression that they had been used
by Gidwani as dummies, and that their purported ownership
was a mere subterfuge in order to increase the amount of
Gidwani’s protected deposit.
Under Republic Act No. 3591 (PDIC Charter), as amended:
all deposits in a bank maintained in the same right and
capacity for a depositor's benefit, either in his name or in
the name of others, shall be added together for the purpose
of determining the insured deposit amount due to a bona
fide depositor, which amount should not exceed the
maximum deposit insurance coverage (MDIC) of
P250,000.00.
Thus, the entitlement to a deposit insurance is based not on
the number of bank accounts held, but on the number of
beneficial owners.
It is this government policy and P250,000.00 threshold that
Gidwani purportedly circumvented by conspiring with the 86
individuals.
If not for the fact that the 683 Landbank crossed checks
amounting to over 97 million Pesos were deposited in the
RCBC account of Gidwani, PDIC would not have gotten wind
of this probable concealment of true ownership over the
subject bank accounts.
Issue 1: Whether or not the trust fund of Legacy form part
of its corporate assets. – NO.
Ruling: The Trust Fund is for the sole benefit of the
planholders and it cannot be used to satisfy the claims of
other creditors of Legacy.
The Assignee argues that Legacy has retained a beneficial
interest in the trust fund despite the execution of the trust
agreement and that the properties can be the subject of
insolvency proceedings.
Legacy is not a beneficiary. It must be stressed that a
person is considered as a beneficiary of a trust if there is a
manifest intention to give such a person the beneficial
interest over the trust properties.
Here, the terms of the trust agreement plainly confer the
status of beneficiary to the planholders, not to Legacy. The
beneficial ownership is vested in the planholders and the
legal ownership in the trustee, LBP; Legacy, as trustor, is
left without any iota of interest in the trust fund.
To rule that Legacy has retained a beneficial interest in the
trust fund is to perpetuate the injustices being committed
against the planholders and violate not only the spirit of the
trust agreement but, more importantly, the lawmaker's
intent.
If indeed Legacy had an interest that could be reached by
its creditors even during insolvency, the planholders would
be prejudiced as they would be forced to share in the assets
that would be distributed pro rata to all creditors, whether
planholders or not.
Legacy merely agreed to facilitate the payment of the
benefits from the trust fund to the intended beneficiaries,
acting as a conduit or an agent of the trustee in the
enforcement of the trust agreement.
Issue 2: Is Legacy a debtor of the planholders relative to
the trust fund? – NO.
Ruling: The Court cannot subscribe either to the Assignee's
position that Legacy is a debtor of the planholders relative
to the trust fund. In trust, it is the trustee, and not the
trustor, who owes fiduciary duty to the beneficiary. The
trustee, LBP, is tasked with the fiduciary duty to act for the
benefit of the planholders as to matters within the scope of
the relation.

The trust fund should not revert to Legacy, which has no

beneficial interest over it. Not being an asset of Legacy, the
trust fund is immune from its reach and cannot be included
by the RTC in the insolvency estate.
 Sir’s Question: Would it be necessary for a planholder to
file a notice of claim in the proceeding where the
rehabilitation or insolvency is taking place?

Diba sa FRIA we have discussed na kapag may

insolvency proceedings, lahat ng creditors magfi file ng
notice of claim dun sa proceedings to participate in the
insolvency proceedings.

Sabi natin, si planholder, necessary ba kay planholder na

mag file ng notice of claim given na hindi naman kasali
dun sa assets na ili-liquidate yung trust fund?

Student: The planholder as creditors of the pre-need

company may file a claim against the pre-need company
in the insolvency proceeding.

Sir: How would you reconcile that with the ruling in this
case which says that the trust fund is not part of the
assets which should be given to the creditors?

Student: They will raise the claim against the trust itself
for the release of their claims against the trust fund
given that the trust fund is solely for their benefit.

Sir: So the answer is yes, magfi-file ka pa rin kasi what's

going to be resolved by the insolvency proceedings ay
hindi lang naman yung distribution. Pati yung issue,
yung genuine issue on whether or not may utang ba
talaga sayo, that is also resolved. Once ma-determine na
meron talaga [utang], yung sa planholders will be from a
different asset which is the trust fund.

Sino CAP planholder dito? Did you remember that time

wherein there was information saying na kung meron
kayong claim, you file within a particular period? If hindi,
they will no longer consider that you have a claim. There
was that time na nag issue sila ng circular. It was posted
in the CAP office that you have to file a claim. Kung
meron kayong claim, then just attach your plan policy.
That is for the purpose of determining the validity of your
claims. Kung meron ka naman talagang claim, it will not
come from the general assets but from the trust fund.

So please take note, hindi pwedeng (--choppy or nawala

talaga si Sir dito--) if there is a pending insolvency or
rehabilitation proceeding kasi it would result to
multiplicity of suits, which is really prohibited or what the
court is trying to prevent.

Transcriber’s comment: I think what Sir refers to the

choppy part is hindi pwedeng mag file ng another claim
or suit ang planholder (creditor) while there is already a
pending insolvency or rehabilitation proceeding because
it would result to multiplicity of suits. Kaya ang recourse
nila (planholders or creditors) ay to file a notice of claim
with the court where the proceeding of insolvency or
rehabilitation is taking place.

SEC v CAP GR No. 202052, March 7, 2018
Facts: College Assurance Plan Philippines, Inc. (CAP) sells
preneed education plans.
To guarantee the payment of benefits under its educational
plans, CAP set up a Trust Fund contributing therein a
certain percentage of the amount actually collected from
each planholder.
The Trust Fund, with the aid of trustee banks, is invested in
assets and securities with yields higher than the projected
increase in tuition fees.
scheme to correct the deficiency, CAP, among others,
proposed to purchase MRT III Bonds and assign the same
to the Trust Fund.
CAP purchased MRT III bonds from SMART and FEMI
but was ordered by the SEC Oversight Board to stop
paying SMART/FEMI due to its perceived inadequacy
of CAP's funds.
Subsequently, CAP filed a Petition for Rehabilitation. In
the interim, CAP sold the MRT III bonds and the
buyers’ payment was credited to CAP’s trust accounts
with Philippine Veterans Bank (PVB).

CAP incurred a trust fund deficiency of 3.179 billion. In

compliance with the directive of SEC to submit a funding
However, CAP’s payment to SMART and FEMI remained to
be executed. Because of this, the receiver moved for the
payment of the respondent's obligations to Smart and FEMI.

Issue: Does the obligation to pay to SMART and FEMI

constitute

• “benefits” or
• “cost of services rendered or property delivered” or
• “administrative expense”
that could be validly withdrawn from the trust fund? – NO.

Ruling:
The obligation to pay Smart and FEMI did not constitute the
"benefits" or "cost of services rendered" or "property
delivered".

In respect of pre-need companies, the trust fund is set up

from the planholders' payments to pay for the cost of
benefits and services, termination values payable to the
planholders and other costs necessary to ensure the
delivery of benefits or services to the planholders as
provided for in the contracts.

The term "benefits" used in Section 16.4 is defined as “the

money or services which the Pre-Need Company undertakes
to deliver in the future to the planholder or his beneficiary.”
Accordingly, benefits refer to the payments made to the
planholders as stipulated in their pre-need plans. Worthy of
emphasis herein is that the trust fund is established "to
ensure the delivery of the guaranteed benefits and services
provided under a pre-need plan contract."

Section 30 of R.A. No. 9829 expressly stipulates that the

trust fund is to be used at all times for the sole benefit of
the planholders, and cannot ever be applied to satisfy the
claims of the creditors of the company.

The CA gravely erred in authorizing the payment out of the

trust fund of the obligations due to Smart and FEMI. Even
assuming that the obligations were incurred by the
respondent in order to infuse sufficient money in the trust
fund to correct its deficiencies, such obligations should be
paid for by its assets, not by the trust fund.

The financial reports submitted by respondent to the SEC as

well as its April 18, 2009 Certification only show that indeed
the MRT III bonds were infused to respondent's Trust Fund
free from any liens and encumbrances, and that the
purchase price thereof is and remains to be respondent's
loan obligation to Smart and FEMI, or its corporate liability,
and not of the Trust Fund.

Payment to Smart and FEMI was not an

administrative expense to be withdrawn from the
trust fund.

Section 16.4, Rule 6 of the New Rules made an exclusive

enumeration of the administrative expenses that may be
withdrawn from the trust fund, as follows: trust fees, bank
charges and investment expenses in the operation of the
trust fund, taxes on trust funds, as well as reasonable
withdrawals for minor repairs and costs of

ordinary maintenance of trust fund assets. Evidently, the

purchase price of the bonds for the capital infusion to the
trust fund was not included as an administrative expense
that could be validly taken from the trust fund.