Philippine Supreme Court Resolutions

G.R. No. 179000 ^[*] (The Manila Southwoods Golf and Country Club, Inc. v Roberto Manabat). 

Manila Southwoods Golf and Country Club, Inc. (Manila Southwoods) filed, in compliance with Section 68 of the Securities Regulations Code (SRC),^[1] an audited financial statement (AFS) for 2003.^[2] On November 3, 2004 the Securities and Exchange Commission (SEC), acting through its General Accountant, respondent Roberto Manabat, wrote Manila Southwoods,^[3] informing it of the following discrepancies in its 2003 AFS: 

1. Inadequate disclosure regarding the voting rights of non-activated shares;^[4] 

2. Inadequate disclosure regarding related party transactions;^[5] 

3. Disclosures regarding related parties in the quarterly reports and proxy statement were inconsistent with the disclosures in the Manila Southwoods' annual financial statement;^[6] 

4. Inadequate disclosure regarding the effect of the adoption of SFAS/IAS 12 and 17 in 2004;^[7] 

5. Inadequate disclosure regarding contingencies;^[8] and 

6. Incomplete submission of schedules.^[9]

The SEC General Accountant also noted that he already called Manila Southwoods' attention to discrepancies (1), (2), and (6) in his review of the 2002 AFS. Despite that club's assurances, it made no corrections in its 2003 AFS. Thus, the General Accountant directed Manila Southwoods to explain the discrepancies and state the course of action that it intended to take on them.

Manila Southwoods gave the following explanations in its letter of November 30, 2004:^[10]

Item 1. The activation of shares had no relation to voting rights and payment of dues. Regardless of activation of shares, all shares had the right to vote. If warranted, the club would disclose in future AFS those shares that were exempt from membership dues.

Item 2. The nature of transactions with related parties involved payments of certain expenses made for and on behalf of such parties. Since they do not pertain to selling of goods or services, no pricing policies needed to be disclosed.

Item 3. Manila Southwoods admitted that the General Accountant already pointed out this discrepancy in his earlier letter.^[11] As a consequence, the club incorporated the observation and corrected the inconsistency in the subsequent 2003 AFS.

Item 4. Due to the complexity of the SFAS/IAS 12 and 17, Manila Southwoods was at first unable to quantify their effects. Subsequently, however, it learned that the effects of adopting SFAS/IAS 12 and 17 were insignificant.

Item 5. Manila Southwoods blamed the in advertence of the Register of Deeds for the failure to transfer the title to the 12-hectare land in its name. It did not disclose as a contingency the non-titling of the property because no adverse claim existed against it.

Item 6. Manila Southwoods did not submit Schedule B (Form 17-A) because no one qualified.^[12]

But the General Accountant was not satisfied with Manila Southwoods' explanations. For this reason, he ruled that Manila Southwoods should be deemed not to have filed a 2003 AFS^[13]  in violation of Sections 17(2)(a) and 68 of the SRC. He directed Manila Southwoods to submit a duly accomplished report and to show cause why it should not be held liable for violation of the rules mentioned.^[14] Undaunted, Manila Southwoods sought audience with the General Accountant on January 31, 2005. It explained anew its reasons for not including the findings of the previous year. In the end, Manila Southwoods undertook to consider the General Accountant's findings and include the same in its 2004 AFS.^[15]

Resolving his show cause order, the General Accountant held I hat, given Manila Southwoods� explanations, he finds that its financial statements were not in substantial compliance with the requirements of Section 68 of the SRC and the generally accepted accounting principles. He thus imposed on the club a fine of P200,000.00. Manila Southwoods elevated the matter to the SEC En Banc on ground of denial of its right to due process. But on September 13, 2005 the En Banc dismissed the appeal^[16] upon a finding that the General Accountant gave Manila Southwoods the opportunity to be heard on the subject discrepancies. The En Banc moreover found that the club's 2003 AFS did not substantially comply with what Section 68 of the SRC required. This prompted Manila Southwoods to seek relief from the Court of Appeals (CA).

On February 9, 2007 the CA rendered judgment,^[17] dismissing Manila Southwoods� petition. The CA held that the SEC General Accountant did not deprive Manila Southwoods of its right to know the reasons for the actions he had taken against it since its infractions could be inferred from his letters to the club. Further, not only did the CA defer to the Commission's expertise over such infractions, the CA also agreed that the club's 2003 AFS did not substantially comply with the pertinent SRC rule.

Manila Southwoods comes to this Court seeking reversal of the CA decision.

The Issues Presented 

The issues presented in this case are:

1. Whether or not the CA erred in not finding that the SEC General Accountant denied Manila Southwoods right to administrative due process when he imposed on it a P200,000.00 fine for violation of Section 68 of the SRC and the generally accepted accounting principles; and

2. Whether or not the CA erred in not finding that Manila Southwoods� 2003 AFS substantially complied with the requirements of Section 68 of the SRC.

The Court's Rulings 

One. In 1940, this Court enshrined the rights of individuals to administrative due process^[18] in Ang Tibay v. Court of Industrial Relations.^[19] Subsequently, however, the Court simplified the statement of those rights as follows: (1) the right to notice, be it actual or constructive, of the institution of the proceedings that may affect a person's legal right; (2) the right to a reasonable opportunity to appeal and defend his rights and to introduce witnesses and relevant evidence in his favor; (3) the right to a tribunal so constituted as to give him reasonable assurance of honesty and impartiality, and one of competent jurisdiction; and (4) the right to a finding or decision of that tribunal supported by substantial evidence presented at the hearing or at least ascertained in the records or disclosed to the parties.^[20]

Manila Southwoods assails as a clear transgression of its right to due process the General Accountant's failure to inform it regarding which particular rule the club had violated. His mere conclusion that Manila Southwoods' 2003 AFS did not sufficiently comply with the requirements of Section 68 of the SRC and the generally accepted accounting principles was not enough. The General Accountant needed to explain how he reached such conclusion.

But Manila Southwoods, must have sufficiently understood what SRC rules it had been accused of violating. Indeed, it submitted a written explanation to the General Accountant respecting such violations in his letter of November 3, 2004. Manila Southwoods did not then complain that the charges against it of violations of the SRC rules had been unclear. Thus, although the General Accountant did not restate those specific violations in his letter of January 6, 2005, where he ruled that the club's explanations were unsatisfactory, and in his decision, where he imposed on the club a fine of P200,000.00, it is evident that he referred to those same violations.

Two. Manila Southwoods also claims that it substantially complied with the requirements of Section 68 of the SRC. But whether it did or did not is largely a factual issue. Factual findings of administrative bodies, like the SEC, are generally binding and final unless it is amply demonstrated that they are unsupported by substantial evidence of record.^[21] The reason behind this policy is the admitted expertise of these bodies to competently deal with intricate factual issues within its proficiency.

There is no reason to deviate from the findings of the SEC and the CA that Manila Southwoods' 2003 AFS did not comply with Section 68 of the SRC and that this necessitated the imposition on it of a fine of P200,000.00. The issues that the General Accountant raised regarding the inadequate disclosure of the voting rights of non-activated shares and the related party transactions as well as the non-submission of certain schedules were issues that he already noted in the club's 2002 AFS. Still, Manila Southwoods did not correct these deficiencies in its 2003 AFS.

WHEREFORE, this Court DISMISSES the petition and AFFIRMS  the Decision of the Court of Appeals dated February 9, 2007 in CA-G.R. SP 92544.

SO ORDERED.

Very truly yours,

MA. LUISA L. LAUREA
Clerk of Court

By:

(Sgd.) TERESITA AQUINO TUAZON
  Asst. Clerk of Court

Endnotes:

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^[*] J. Nachura, no part. J.  Leonardo-De Castro, additional member, per raffle dated June 8, 2011.

^[1] Section 68. Special Accounting Rules - The Commission shall have the authority to make, amend, and rescind such accounting rules and regulations as may be necessary to carry out the provisions of this Code, including rules and regulations governing registration statements and prospectuses for various classes of securities and issuers, and defining accounting, technical and trade terms used in this  Code. Among other things, the Commission may prescribe the form or forms in which the required information shall be set forth, the items or details to be shown in the balance sheet and income statement, and the methods to be followed in the preparation of accounts, appraisals or valuation of assets and liabilities, determination of depreciation and depletion, differentiation of recurring and non-recurring income, differentiation of investment and operating income, and in the preparation, where the Commission deems it necessary or desirable, of consolidated balance sheets or income accounts of any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control, with the issuer. 

^[2] Rollo, pp. 102-120. 

^[3] Id. at 76-78. 

^[4] Based on the proxy statement submitted by the Club, only stockholders in good standing as of the record date shall be entitled to notice and have the right to vote. In the Club's By-Laws, it is stated that payment of dues of primary shareholders (FEGDI, the owners of the land and their nominees) are suspended, this means that they are classified as non-activated shares based on the disclosure in Note 8. However, based on the proxy statement submitted by the Club to the Commission, it indicated that FEGDI is one of the beneficial owners holding 22.5% of class "B" common shares and is entitled to vote equivalent to the number of shares held. The rights, preferences and restrictions attaching to each class of shares should be disclosed in the financial statements as required, by SFAS/IAS 1, paragraph 74 (a)(v). The Club should have disclosed in the notes to the financial statement the fact that these non-activated shares, which are not paying dues, have the special right of being entitled to vote. 

^[5] The Club did not disclose the nature of their relationship and the pricing policy of its related party transactions as required by SFAS/IAS 24. The disclosure "in the normal course of business'' is inadequate. 

^[6] In its annual financial statement, the Club disclosed related party transactions which are not in its proxy statement. Related party transactions discussed in the proxy statement are with AGPC, Warbird Security & Investigation Agency, Inc., Bank of Commerce, and Golforce, Inc. In its 17Q report ended September 30, 2003, it only disclosed transactions with Manila Southwoods Manor, Manila Southwoods Homeowners Association, Asia Pacific Golf Corporation and Fil-Estate Golf Development, Inc. Disclosures in all reports to the Commission should be consistent with one another in order that the readers will not be confused as which report is to be deemed complete and correct. 

^[7] The Club did not disclose the estimate of the effect of the future change on its net income or loss and financial position with respect to the adoption of SFAS/IAS 12 and 17 as required by the SRC Rule 68.1. The disclosure of the Club which states "the company has not yet determined the financial impact of the adoption of these standards" is not acceptable. 

^[8] In SEC I7A report and in Note 5, the Club disclosed that although the beneficial ownership of the remaining 12 hectares of the Golf Course project was already conveyed, the actual transfer and registration of the same has not yet been completed. The Club did not disclose the reason why the actual transfer and registration of the 12 hectares has not been made, and if there was a legal contingency resulting to the claim of this land area. This situation has been in existence for several years now. 

^[9] The Club did not submit Schedule B- Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholder (Other than Related Party) as required by SRC Rule 68.1. In Note 3, the Club showed the breakdown of its receivables, 4% of its receivables are from Officers and Employees. The Club should have furnished a schedule showing the information required by the Rule. 

^[10] Rollo, pp. 121-125. 

^[11] December 13, 2003. 

^[12] Schedule B states that: �This schedule will be filed with respect to each person among the directors, officers, employees and principal stockholder (other than related parties) from whom an aggregate indebtedness of more than P100,000.00 or one percent of the total asset, which ever is less is owed." 

^[13] See SRC Rule 68, paragraph (6)(a). 

^[14] Letter dated January 6, 2005, rollo, p. 127. 

^[15] Letter dated February 17, 2005, id. at 128-131. 

^[16] Docketed as OGA-AA Case 03-05-60. 

^[17] Docketed as CA-G.R. SP 92544. 

^[18] The seven cardinal rights are: (a) The right to a hearing which includes the right of the party to present his own case and submit evidence in support (hereof; (b) the tribunal must consider the evidence presented; (c) the decision must have something to support it; (d) the evidence to support a finding or conclusion must be "substantial"; (e) the decision must be rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected; (f) the tribunal or judge must act on its or his own independent consideration of the law and facts of the controversy, and not simply accept the views of a subordinate in arriving a decision; and (g) the tribunal or judge should, in all controversial questions, render its or his decision in such a manner that the parties to the proceeding can know the various issues involved, and the reason for the decisions rendered. 

^[19] 69 Phil. 635(1940). 

^[20] Tolentino v. Commission on Elections, G.R. Nos. 187958, 187961 & 187962, April 7, 2010, 617 SCRA 575, 595, citing Air Manila, Inc. v. Balatbat, 148 Phil. 502, 506 (1971). 

^[21] Queensland-Tokyo Commodities. Inc. v. George, G.R. No. 172727; September 8, 2010, 630 SCRA 304,