CA

Republic of the Philippines
Court of Appeals
Manila
SPECIAL TWELFTH DIVISION
RAPPLER, INC. AND CA-G.R. SP. No. 154292

RAPPLER HOLDINGS
CORPORATION,
Petitioners, Members:
Bruselas, Jr., Chairman

- versus - Santos,* and
Legaspi,** JJ.:
SECURITIES AND
EXCHANGE COMMISSION Promulgated:
SPECIAL PANEL CREATED
PURSUANT TO SEC July 26, 2018
RESOLUTION NO. 436,
SERIES OF 2017,
Respondent.
x==============================================x
DECISION
Santos, J.
Before this Court is a Petition for Review1 under Rule 43 of

the Rules of Court, which seeks to annul and set aside the
Decision2 dated 11 January 2018 rendered by the SEC En Banc in
SP Case No. 08-17-001 entitled “In Re: Rappler, Inc. and Rappler
Holdings Corporation.” The dispositive portion of the assailed
Decision reads, as follows:
WHEREFORE, premises considered, the En Banc finds

Rappler, Inc. and Rappler Holdings Corporation, a Mass Media
entity and its alter ego, liable for violating the constitutional
* Acting Senior Member per IRCA, Seniority Rule.
** Acting Junior Member per Officer Order No. 315-18-RFB dated 6 July 2018.
1 Rollo, pp. 10-95
2 Id., at 369-397.
CA-G.R. SP. No. 154292
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and statutory Foreign Equity Restrictions in Mass Media,

enforceable through laws and rules within the mandate of the
Commission.
The En Banc hereby imposes the following

administrative penalties:
(1) The Omidyar PDR is declared VOID pursuant

to Section 71.2 of the SRC, for being a fraudulent
transaction within the ambit of Section 26.1 of the
SRC;
(2) REVOCATION OF CERTIFICATE OF

INCORPORATION on each respondent –
Rappler, Inc. being the mass media entity that
sold control to foreigners, and Rappler Holdings
Corporation being its alter ego, existing for no
other purpose than to effect a deceptive scheme to
circumvent the Constitution.
Let a copy of this DECISION be furnished the

Department of Justice for appropriate action.
SO ORDERED.3 (Emphasis in the original)
The Antecedents
Petitioner Rappler, Inc. (Rappler) is a domestic stock

corporation incorporated on 25 July 2011.4 The primary purpose
of Rappler, as stated in its Articles of Incorporation, is as follows:
xxx to design, develop, establish, market, sell, maintain,

support, distribute, customize, sell, re-sell and/or operate news,
information and social network services including but not
limited to content, platforms, systems and/or applications via
web, internet, mobile and other delivery formats;
communications, advertising, corporate social responsibility,
marketing, PR, events, brand affinity and other related services
and packages provided it will not act as an internet service
3 Id., at 397.
4 Annex “C”, Petition, Id., at 128.
CA-G.R. SP. No. 154292
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provider.”5
Petitioner Rappler Holdings Corporation (RHC), the parent

company of Rappler,6 is a domestic stock corporation
incorporated on 12 December 2014.7 It was envisioned as a
holding company to consolidate the business of Rappler and other
related entities.8 The primary purpose of RHC, as stated in its
Articles of Incorporation,9 is as follows:
To acquire by purchase, exchange, assignment, gift or

otherwise, and to hold, own and use for investment or
otherwise, and to sell, assign, transfer, exchange, lease, let,
develop, mortgage, pledge, traffic, deal in and with and
otherwise operate, enjoy and dispose of real and personal
properties of every kind and description and wherever
situated, as and to the extent permitted by law, including, but
not limited to, shares of capital stock, bonds, debentures,
promissory notes, or other securities or obligations, created,
negotiated or issued by any corporation, association, or other
entity, foreign or domestic, and real estate, whether improved
or unimproved, and any interest or right therein, as well as
buildings, tenements, warehouses, factories, edifices and
structures and other improvements, and while the owner,
holder or possessor thereof, to exercise any and all rights,
powers and privileges of ownership or any other interest
therein, including the right to vote on any proprietary or other
interest on any shares of the capital stock, and upon any bonds,
debentures, or other securities having power, so owned or held
and the right to receive, collect and dispose of, any and all
rentals, dividends, interests and income derived therefrom,
except the management of fund portfolios and similar assets of
such managed entities; Provided it shall not act as a
stockbroker or dealer of securities.10
5 Petition, Id., at 19-20.

6 Petitioner's Reply, Id., at 968.
7 Annex “E”, Petition, Id., at 231.
8 Petition, Id., at 24.
9 Annex “E”, Petition, Id., at 234-237.
10 Id., at 234.
CA-G.R. SP. No. 154292
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For brevity, Rappler and RHC will be collectively referred to

as “petitioners.”
According to petitioners, Rappler is a start-up company that

was set up as a small business initially financed and operated by a
few Filipinos who offered a “service, i.e., organized social
journalism and positive social movement through the use of
internet, not offered in the market at that time.” Petitioners allege
that Rappler is a technology company that “uses the internet and
other digital systems to report and disseminate news and provide
the public with a forum for social interaction.” Petitioners claim
that Rappler's business is unique in that it provides a service that
has not been previously offered in the market as “it owns a patent
for its User-Based Response Cluster Generation System, which is a
key instrument in carrying out its business.”11 Petitioners allege
that Rappler is not engaged in print media and broadcast media.
They also allege that Rappler's goal, since its conceptualization, is
to operate its business globally. Rappler has apparently set up a
News Bureau in Indonesia in 2014 and a business in 2015. It also
set up a business entity in Singapore in 2015.12
On 29 May 2015, RHC issued a Philippine Depositary

Receipt (PDR) Instrument to North Base Media, Ltd.'s investment
arm, NBM Rappler, L.P., (NBM PDR), through which NBM
Rappler, L.P. (NBM) was issued 264,601 PDRs on 29 May 2017
and 11,764,117 PDRs on 29 July 2017. 13 According to petitioners,
North Based Media, Ltd. is an investment firm focused on media,
journalistic enterprise and digitally-driven opportunities in

12 Id., at 22.
13 Id., at 24.
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growth markets, operates as a venture capital firm, invests in

media and technology sectors and is not a foreign media entity.14
On 20 October 2015, RHC issued a PDR Instrument

(Omidyar PDR) to Omidyar Network Fund, L.L.C. (Omidyar),
through which instrument Omidyar received 7,217,257 PDRs.15
According to petitioners, Omidyar is a philanthropic venture
capital firm founded by Pierre Omidyar, the founder of eBay. It is
allegedly known to make investments in companies even if the
monetary returns are minimal as long as the business has
potential to give value to the greater community.16
On 22 December 2016, the SEC En Banc received a Letter

dated 14 December 2016 from the Office of the Solicitor General
(OSG) requesting an investigation of petitioners “for any possible
contravention of the strict requirements of the 1987 Constitution,”
with regard to the issuances of NBM PDR and Omidyar PDR.17
On 28 February 2017, petitioners appeared in response to a

Notice of Conference called by the SEC Company Registration
and Monitoring Department (CRMD).18
On 8 July 2017, the Special Panel was created by the SEC En

Banc through SEC Resolution 437, series of 2017,19 to conduct a
formal investigation of petitioners. SEC Resolution No. 437
provides, as follows:
14 Ibid.
15 Id., at 25.
16 Id., at 24-25.
17 SEC Decision, Id., at 371.
19 Annex “Q”, Petition, Id., at 361.
CA-G.R. SP. No. 154292
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RESOLVED, to constitute the ZW Task Force as a Special

Panel/Investigating Body, for purposes of conducting a formal,
in-depth examination of Rappler, Inc., and of its parent,
Rappler Holdings Corp., as to possible violations of the
nationality restrictions on ownership and/or control of Mass
Media entities, in relation to the Anti-Dummy Law, as well as
possible violations of the Corporation Code, the Securities
Regulations Code, and other laws within the Commission's
mandate.20
On 1 August 2017, the Special Panel issued a Show Cause

Order,21 directing the petitioners to file a sworn
statement/explanation within fifteen (15) days. The Show Cause
Order reads, in part:
xxx
You are directed to show cause and submit your sworn

statement/explanation within fifteen days (15) from receipt , as
to why you should not be held liable for violation of the
Foreign Equity Restrictions enshrined in Article XVI, Section
11(1) of the Constitution (in relation to Article II, Section 19
thereof) and enforceable through Section 2 of Presidential
Decree 1018, Limiting the Ownership and Management of
Mass Media to Citizens of the Philippines (in relation to the
sanctions under Section 6(i) of Presidential Decree 902-A, as
amended, and Section 5.1(f) of the Securities Regulation
Code), Section 1 of Commonwealth Act 108, aka The Anti-
Dummy Act (in relation to the sanction under Section 6(i) of
Presidential Decree 902-A, as amended, and Section 5.1(f) of
the Securities Regulation Code), and Section 7 in relation to
Section 14 of Republic Act 7042, The Foreign Investments Act
of 1991, as amended.
xxx (Emphasis and underscoring in the original)22
On 17 August 2017, petitioners filed a Request for Extension of
20 Ibid.
21 Annex “I”, Petition, Id., at 301-304.
22 Id., at 301.
CA-G.R. SP. No. 154292
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Time23 to file their sworn statement/explanation in response to

the Show Cause Order.24
On 23 August 2017, the Special Panel issued an Order25

granting the request for extension, for a non-extendible period of
five (5) days.
On 29 August 2017, petitioners filed their Verified

Explanation.26
In their Verified Explanation, petitioners stated that they did

not violate any law relating to foreign equity restrictions,
including Section 11(1), Article XVI in relation to Section 19,
Article II of the 1987 Constitution, Section 2 of Presidential Decree
No. 1018 and Section 7 in relation to Section 14 of Republic Act
No. 7042 for the following reasons; (a) petitioners are wholly-
owned and managed by Filipino citizens;27 (b) the purchase by
NBM Rappler and Omidyar of the PDRs issued by RHC did not
vest them with ownership of petitioners;28 (c) the officers and
directors of petitioners are all Filipinos; 29 (d) Clause 12.2.2 of the
Omidyar PDR does not confer upon Omidyar the power to
control or manage Rappler and is intended to safeguard
Omidyar's rights in relation to the Omidyar PDR;30 and (e) there
has been no instance when NBM Rappler or Omidyar exercised
ownership or control over petitioners.31
23 Annex “J”, Petition, Id., at 306-308

25 Annex “K”, Petition, Id., at 310.
26 Annex “D”, Id., at 142-182.
27 Id., at 158.
28 Id., at 159.
29 Id., at 161.
30 Id., at 162.
31 Id., at 168.
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Petitioners further stated that they did not violate Section 1

of the Anti-Dummy Act for the following reasons: (a) Rappler is
not engaged in the business of mass media, and therefore, it is not
obligated to ensure that the ownership and management of its
business is limited to Filipino citizens or corporations; 32 (b) even
assuming that Rappler is engaged in the business of mass media,
none of its stockholders allowed their names or citizenship to be
used for the purpose of evading laws that require the ownership
and management of mass media to be limited to Filipino citizens
or corporations;33 (c) the Anti-Dummy Act does not preclude
NBM Rappler and Omidyar from profiting from their investment
in RHC;34 and (d) all the stockholders of petitioners paid for their
equity and had real and personal properties, credit and other
assets, the value of which is equivalent to their holdings.35
On 27 September 2017, the Special Panel issued an Order for

the Production of Documents,36 within fifteen (15) days, of the
following:
1. A certified true copy of the Philippine Depositary Receipt

Instrument covering 11,764,117 PDRs issued on 29 July 2015 to
NBM Rappler.
2. The registration/organization/incorporation documents of

the following foreign entities:
(a) North Base Media, Ltd.
(b) NBM Rappler, L.P.
32 Id., at 169.
33 Id., at 172.
34 Id., at 176.
35 Id., at 180.
36 Annex “L”, Petition, Id., at 312-313.
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(c) Omidyar Network Fund LLC
and other reference materials perused in the conduct of due

diligence.37
On 12 October 2017, petitioners filed their Verified

Compliance38 to the Order for the Production of Documents. In their
Verified Compliance, petitioners attached the following annexes:
a. Annex 1 – a copy of Certification39 dated 10 October

2017 issued by Atty. Jose Maria Helena, the Corporate
Secretary of RHC, stating that the copy of the
Philippine Depositary Receipt Instrument covering the
11,764,117 PDRs issued on 29 July 2015 to NBM
Rappler, L.P., which is attached thereto, is a faithful
reproduction of the original.
b. Annex 2 – a copy of the Certificate of Registration of

Exempted Limited Partnership40 of NBM Rappler, L.P.
dated 14 January 2015.
c. Annex 3 – a copy of the Certificate of Good Standing of

a Partnership41 for NBM Rappler, L.P. dated 15 August
2017.
d. Annex 4 – a copy of the NBM Rappler, L.P. Register

of Partnership Interests.42
e. Annex 5 – a copy of the notarized Affidavit43 dated 29

August 2017 of North Base Media, Ltd. Partner and
General Counsel Stuart Karle, through which he states
37 Id., at 312.
38 Annex “M”, Petition, Id., at 315-317.
39 Id., at 326.
40 Id., at 328.
41 Id., at 329.
42 Id., at 330-331.
43 Id., at 333.
CA-G.R. SP. No. 154292
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that “NBM Rappler, L.P. is not a partnership between

North Base Media, Ltd. and Rappler, Inc., a Philippine
corporation. NBM Rappler, L.P. does not have any
Filipino partners or investors.”
f. Annex 6 – a copy of the Certificate of Formation44 of

Omidyar Network Fund, LLC dated 13 April 2004.
g. Annex 7 – a copy of the Certificate of Change of Agent

Amendment of Limited Liability Company 45 of Omidyar
Network Fund, LLC.
On 22 December 2017, petitioners filed a Verified

Supplemental Compliance.46 In their Verified Supplemental Compliance,
they attached a copy of a Waiver47 of Paragraph 12.2.2 of the
Omidyar PDR executed on 11 December 2017 by Omidyar.
On 10 January 2018, the Special Panel rendered an

Investigation Report48 finding that:
Here, there is a substantial evidence that respondents,

who are alter egos, acted with deceit in a scheme to justify the
grant of control, and also financial returns, to foreign investors
when they sold the ON PDR, a security.
Putting together all the evidence, the scheme that

emerges is this:
• Incorporated in 2011, Rappler, Inc. publishes news and

other information intended for the masses via the internet,
mobile devices, and other media of communication;
• Rappler, Inc. has all-Filipino shareholders, directors, and

44 Id., at 336.
45 Id., at 337.
46 Annex “N”, Petition, Id., at 339-340.
47 Id., at 349-350.
48 Annex “I”, OSG Comment, Id., at 489-517.
CA-G.R. SP. No. 154292
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officers;
• In 2013 and 2014, Rappler, Inc. obtained commitments

from foreign investors, to whom it will grant control (but not in
the form of stock ownership or management on the board)
and/or returns (but not in the form of dividends) in exchange
for over a million dollars.
• In December 2014, Rappler, Inc. needing a way to

legalize the receipt of foreign money, but unable to issue its
stock directly or give seats on its board, formed Rappler
Holdings Corporation, intended for the sole purpose of issuing
PDRs which derive their value from equity.
• Rappler Holdings Corporation also has all-Filipino

shareholders, directors, and officers, because the buyer of the
shares of a mass media entity, like Rappler, Inc., has to be
owned entirely by Filipinos;
• In 2015, Rappler Holdings Corporation, a mere

instrumentality of Rappler, Inc. purchased the latter's shares
and then issued derivatives to two foreign investors, North
Base Media and Omidyar Network;
• Because Omidyar was the later purchaser and the

purchased of less PDRs, it caused the insertion of certain
provisions that assure control over other PDR Holders, and also
over the corporate policies of Rappler, Inc. and its alter ego
Rappler Holdings Corporation;
• NBM's PDR, although also called “PDR,” does not

contain these terms;
• Omidyar Network does not, by owning the ON PDR,

become a stockholder of either Rappler, Inc. or Rappler
Holdings Corporation;
• Rappler Inc., the Philippine mass media entity,

intentionally granted more than 0% control (influence over
corporate policy) to Omidyar;
CA-G.R. SP. No. 154292
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• Rappler Holdings Corporation, the alter ego, also

intentionally granted more than 0% control (influence over
corporate policy) to Omidyar;
• The ON PDR also grants financial returns through a

pass-through arrangement, where any amount Rappler
Holdings Corporation would receive from Rappler, Inc. as cash
dividends would then pass-through entirely to the ON PDR
Holders as “cash distributions:”
• Financial returns have not accrued to Omidyar because

Rappler, Inc. does not have any retained earnings and cannot
declare dividends;
• Through the ON PDR, a security, Omidyar Network has

more than 0% control of a Filipino mass media entity and its
alter ego;
• The ON PDR is not stock (i.e “equity”), but it gives to its

Holders certain rights derived from equity and reserved to
Filipinos;
• Rappler, Inc. and Rappler Holdings Corporation file a

Notice for Exemption claiming that the ON PDR issuance was
an exempt transaction, i.e. a sale of securities within the
Philippines to less than 20 persons under Section 10(k) of the
SRC;
• As private corporations, and because they claim the ON

PDR issuance is an Exempt Transaction, Rappler, Inc. and
Rappler Holdings Corporation were not required to submit a
copy of the ON PDR.49 (Emphasis and italics in the original)
The dispositive portion of the Investigation Report reads, as

follows:
WHEREFORE, premises considered, the Special Panel

finds Rappler, Inc. and Rappler Holdings Corporation, a Mass
Media entity and its alter ego, liable for violating the
constitutional and statutory Foreign Equity Restrictions in Mass
49 Id., at 513-514.
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Media, enforceable through laws and rules within the mandate

of the Commission.
The Special Panel thus recommends to the En Banc the

imposition of the following administrative penalties:
(1) The Omidyar PDR is declared VOID pursuant to

Section 71.2 of the SRC, for being a fraudulent transaction
within the ambit of Section 26.1 of the SRC;
(2) REVOCATION OF CERTIFICATE OF

INCORPORATION on each respondent – Rappler, Inc. being
the mass media entity that sold control to foreigners, and
Rappler Holdings Corporation being its alter ego, existing for
no other purpose than to effect a deceptive scheme to
circumvent the Constitution.
It is further recommended that this Investigation Report

be referred to the Enforcement and Investor Protection
Department to coordinate the criminal investigation of
violations of the Mass Media Law and the Anti-Dummy Law
with the Department of Justice.
SO RECOMMENDED.50 (Emphasis and italics in the original)
On 11 January 2018, the SEC En Banc approved and adopted

in toto the Investigation Report of the Special Panel and rendered
the assailed Decision.
Hence, this Petition.
Assignment of Errors
Petitioners raise the following grounds in support of their

Petition.
50 Id., at 517.
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I. IN HASTILY ISSUING THE ASSAILED DECISION TO PUT

RAPPLER AND RHC OUT OF BUSINESS AND VOID THE
OMIDYAR PDR, THE SEC EN BANC DEPRIVED THEM OF
THEIR CONSTITUTIONAL RIGHT TO DUE PROCESS. IN
APPLYING A PROCEDURE DIFFERENT FROM THAT
FOUND IN THE SEC RULES, THE SEC EN BANC DEPRIVED
RAPPLER AND RHC OF EQUAL PROTECTION OF THE
LAW. AS SUCH, THE ASSAILED DECISION IS VOID.
II. CLAUSE 12.2.2 OF THE OMIDYAR PDR DOES NOT

CONFER UPON OMIDYAR CONTROL, MUCH LESS
OWNERSHIP AND MANAGEMENT, OVER RAPPLER. AS
SUCH, THE SEC EN BANC HAS NO BASIS TO DECLARE
VOID THE OMIDYAR PDR AND REVOKE THE
CERTIFICATES OF INCORPORATION OF RAPPLER AND
RHC.
III. THERE IS NO FINDING, AND THERE CAN BE NO

FINDING, BY THE SEC EN BANC THAT OMIDYAR
ACTUALLY EXCERCISED CONTROL OVER RAPPLER.
THUS, RAPPLER AND RHC CANNOT BE PUNISHED, IN
ANY WAY FOR A VIOLATION THAT NEVER OCCURED.
IV. RAPPLER IS NOT ENGAGED IN THE BUSINESS OF

MASS MEDIA, WHICH IS SUBJECT TO NATIONALITY
RESTRICTIONS UNDER SECTION 11(1) OF ARTICLE XVI OF
THE CONSTITUTION. RAPPLER AND RHC CANNOT,
THEREFORE, BE MADE, IN ANY WAY LIABLE FOR
VIOLATION OF THIS PROVISION AS IMPLEMENTED BY PD
1018.
V. RHC WAS ESTABLISHED FOR LEGITIMATE GLOBAL

BUSINESS EXPANSION, NOT TO VEST CONTROL OVER
RAPPLER TO OMIDYAR. THE REQUIRED CLEAR AND
CONVINCING EVIDENCE TO JUSTIFY THE PIERCING OF
THE CORPORATE VEIL IS CLEARLY ABSENT IN THIS
CASE.
VI. THE REVOCATION OF THE CERTIFICATES OF

INCORPORATION OF RAPPLER AND RHC IS A PENALTY
THAT IS TOO SEVERE AND GROSSLY
DISPROPORTIONATE TO THE SUPPPOSED WRONG
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COMMITTED. AS SUCH, IT VIOLATES SUBSTANTIVE DUE

PROCESS. GIVEN THAT: (A) THE SUPPOSED WRONG
COMMITTED BY RAPPLER AND RHC DID NOT RESULT IN
INJURY TO THE PUBLIC; (B) IT DEPRIVES OTHER
INVESTORS IN RHC LIKE NBM AND OTHER
STOCKHOLDERS OF RAPPLER THE RIGHT TO RETURNS
ON THEIR INVESTMENT; (C) RAPPLER PROVIDES A
PUBLIC SERVICE; AND (D) RAPPLER'S BUSINESS IS AN
EXAMPLE OF HOW THE FILIPINO INTELLECT AND
TALENT MAY BE AT PAR OR EVEN GREATER THAN
THOSE IN DEVELOPED COUNTRIES, IT IS BUT JUST TO
REVERSE AND SET ASIDE THE ASSAILED DECISION.
VII. THE ASSAILED DECISION IMPERILS THE EXISTENCE

OF CORPORATIONS WITH CONTRACTUAL CLAUSES
SIMILAR TO CLAUSE 12.2.2 OF THE OMIDYAR PDR. IT HAS
A CHILLING EFFECT ON BUSINESS AND STANDS TO
HAVE DISASTROUS CONSEQUENCES ON MINORITY
SHAREHOLDERS' RIGHTS AND THE COUNTRY'S EFFORTS
TO ATTRACT MORE FOREIGN INVESTMENT.
VIII. THE EXISTENCE OF A CLAUSE IN A CONTRACT

THAT IS SUBSEQUENTLY ADJUDGED TO BE VOID IS NOT
AMONG THE GROUNDS PROVIDED BY LAW FOR
REVOCATION OF A CERTIFICATE OF INCORPORATION.
IX. GIVEN THE SERIOUS PROCEDURAL AND

SUBSTANTIVE IRREGULARITIES IN THE QUESTIONED
DECISION, THERE CAN BE NO OTHER CONCLUSION BUT
THAT ITS REAL PURPOSE IS TO SILENCE RAPPLER AND
MUZZLE FREE EXPRESSION.51
This Court’s Ruling
Preliminarily, this Court notes that the exercise of press

freedom is not an issue in this case. Rather, the issue involves the
exercise of the regulatory powers by the SEC over domestic

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corporations duly registered with it, in this case, petitioners, in

connection with their alleged violation of the foreign equity
restriction under Section 11(1), Article XVI of the 1987
Constitution.
Based on the pleadings filed by the parties, the issues to be

resolved by the Court may be summarized, as follows:
1. Whether or not Rappler is engaged in the

business of mass media, and therefore, subject to
the foreign equity restriction under Section 11(1),
Article XVI of the 1987 Constitution;
2. Whether or not Clause 12.2.2 of the Omidyar

PDR confers upon Omidyar foreign control over
Rappler, through RHC, in violation of the
foreign equity restriction under Section 11(1),
Article XVI of the 1987 Constitution;
3. Whether or not petitioners are denied of their

constitutional right to due process when the
SEC, in rendering the assailed Decision, adopted
a procedure different from the procedure
provided in the 2016 SEC Rules in the
administrative action taken against petitioners;
and
4. Whether or not the imposition of the penalty of

revocation of petitioners' Certificates of
Incorporation is proper.
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Before proceeding to discuss the issues raised in the Petition,

this Court deems it proper to discuss first the applicable laws and
the relevant jurisprudence on the matter.
Section 11(1), Article XVI of the 1987 Constitution provides:
Section 11. (1) The ownership and management of mass

media shall be limited to citizens of the Philippines, or to
corporations, cooperatives or associations, wholly-owned and
managed by such citizens.
The Congress shall regulate or prohibit monopolies in

commercial mass media when the public interest so requires.
No combinations in restraint of trade or unfair competition
therein shall be allowed.
This constitutional provision is implemented in Republic

Act (RA) No. 7042,52 as amended by RA 8179,53 and its
Implementing Rules and Regulations (IRR) in relation to the
issuance of Foreign Investment Negative List (FINL). RA No. 7042
provides:
Section 8. List of Investment Areas Reserved to

Philippine Nationals (Foreign Investment Negative List). -
The Foreign Investment Negative List shall have three (3)
component lists: A, B, and C:
a) List A shall enumerate the areas of activities
reserved to Philippine nationals by mandate of the
Constitution and specific laws.
xxx
Under the recent FINL issued under Executive Order 184,
52 An Act to Promote Foreign Investments, Prescribe the Procedures for Registering Enterprises
Doing Business in the Philippines, and for other Purposes, 13 June 1991.
53 An Act to Further Liberalize Foreign Investments, Amending for the Purpose Republic Act No.
7042, and for other Purpose, 28 March 1996.
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series of 2015,54 the following industries are required to be wholly-

owned by Filipinos:
LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE

OF THE CONSTITUTION AND SPECIFIC LAWS
No Foreign Equity
1. Mass media except recording (Art. XVI, Sec. 11 of the

Constitution; Presidential Memorandum dated 05 May 1994)
xxx
Section 2 of Presidential Decree (PD) No. 1018, 55 although

issued prior to the 1987 Constitution, also provides the same
foreign equity restriction for mass media, thus:
Section 2. The ownership and management of mass

media shall be limited to citizens of the Philippines, or to
corporations or associations wholly owned and managed by
such citizens.
Definition of mass media
The term mass media is not defined in the 1987 Constitution

itself.
Under PD No. 1018, mass media is defined, as follows:
Section 1. The term "mass media" refers to the print

medium of communication, which includes all newspapers,
periodicals, magazines, journals, and publications and all
advertising therein, and billboards, neon signs and the like, and
the broadcast medium of communication, which includes radio
and television broadcasting in all their aspects and all other
54 Promulgating the Tenth Regular Foreign Investment Negative List, 29 May 2015.
55 Limiting the Ownership and Management of Mass Media to Citizens of the Philippines and for
other Purposes, 22 September 1976.
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cinematographic or radio promotions and advertising.
This definition classifies mass media into two types only -

print media and broadcast media.56
In 1998, the SEC, under then Chairman Perfecto R. Yasay, Jr.

requested for a definite ruling from the Department of Justice
(DOJ) on whether the Internet business constitutes mass media
which should not be given to foreign investors pursuant to
Section 11(1), Article XVI of the 1987 Constitution. Through DOJ
Opinion No. 040, series of 1998, the DOJ stated, as follows:
The request, it appears, is raised in connection with the

implementation of the Second Regular Foreign Investment
Negative List (E.O. No. 362, s. 1996).
In Opinion No. 24, s. 1986, this Department, construing

an identical provision in the 1973 Constitution, said:
"The term 'mass media' in the Constitution

refers to any medium of communication, a newspaper,
radio, motion pictures, television, designed to reach the
masses and that tends to set the standards, ideals and
aims of the masses (Op. No. 163, s. 1973). The
distinctive features of any mass media undertaking is
the dissemination of information and ideas to the
public, or a portion thereof (Op. No. 120, s. 1982). . ."
(reiterated in Op. No. 10, s. 1996).
An almost identical definition of "mass media" is found

in the Rules and Regulations for Mass Media in the Philippines
adopted by the Media Advisory Council and approved by the
President of the Philippines (See De Leon, Textbook on the
Philippine Constitution, 1994 ed., p. 579). According to said RR,
the term "mass media" embraces means of communication that
reach and influence large numbers of people including print
56 See also Section 1 of Presidential Decree No. 1776, Further Amending Presidential Decree
No. 756, Entitled “Abolishing the Media Advisory Council and the Bureau of Standards for Mass
Media, and Authorizing the Organization of Regulatory Councils for Print Media and For
Broadcast Media, 14 January 1981.
CA-G.R. SP. No. 154292
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media (especially newspapers, periodicals and popular

magazines), radio, television, and movies, and involves the
gathering, transmission and distribution of news, information,
messages, signals and all forms of written, oral and visual
communications (see also, DOJ Opn. No. 163, s. 1973).
Upon the other hand, the "Internet" is a "giant network

which interconnects innumerable smaller groups of linked
computer networks (American Civil Liberties Union vs. Reno,
929 F. Supp. 824, 830, cited in "Purging Pornography in the
Internet", IBP Law Journal and Magazine, Sept. 1997, p. 96).
Access to this "network of networks", which virtually covers the
entire globe, can either be through the use of a computer or
computer terminal that is directly (and usually permanently)
connected to a computer network that is itself directly or
indirectly connected to the Internet, or, through the use of a
"personal computer" with "modem" to connect over a telephone
line to a larger computer network that is itself directly or
indirectly connected to the Internet (id., at p. 97).
Considering the nature and function of an Internet and

the fact that it offers three broad types of services, i.e., (1)
electronic mail (e-mail) which is the computer version of the
post office as it can transmit both text and still or moving visual
messages to an addressee or multiple addresses in a mailing list;
(2) Bulletin Board System (BBS) which emulates an ordinary
bulletin board and; (3) World Wide Web (WWW) which consists
of documents (with their respective addresses) stored in the
Internet containing varied information in text, still images or
graphics (see, ACLU case, supra, at p. 836-838), it may be safely
said that an Internet access provider is one engaged in offering
to the owner of a computer the services of inter-connecting the
latter's computer to a network of computers thereby giving him
access to said services offered by Internet.
Construed in the light of the earlier definition of "mass

media", which involves not only the transmittal but also the
creation/publication, gathering and distribution of the news,
information, messages and other forms of communications to
the general public, it appears indubitable that the Internet
business does not constitute mass media. Accordingly, it cannot
fall within the coverage of the constitutional mandate limiting
ownership and management of mass media to citizens of the
CA-G.R. SP. No. 154292
Decision
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Philippines or wholly-owned and managed Philippine

corporations.
The rationale is because in Internet business, the Internet

access provider merely serves as carrier for transmitting
messages. It does not create the messages/information nor
transmit the messages/information to the general public, as
mass media do, and the publication of the
messages/information or stories carried by the Internet and
transmitted to the computer owner, thru the access provider, is
decided by the sender or the inter-linked networks.
The foregoing considered, your query is answered in the

negative.
Based on the foregoing DOJ opinion, the internet business is

not considered as a mass media because it merely serves as carrier
for transmitting messages and does not create the messages or
information nor transmit the messages or information to the
general public.
However, under Republic Act (RA) No. 9211,57 the definition

of mass media was expanded to include electronic media. Thus:
Section 4. Definition of Terms - As used in this Act:
xxx
f. "Mass Media" - refers to any medium of communication designed to

reach a mass of people. For this purposes, mass media includes print
media such as, but not limited to, newspapers, magazines, and
publications; broadcast media such as, but not limited to, radio,
television, cable television, and cinema; electronic media such as but
not limited to the internet;
57 An Act Regulating the Packaging, Use, Sale, Distribution and Advertisements of Tobacco
Products and for other Purposes, 23 June 2003.
CA-G.R. SP. No. 154292
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Pursuant to RA No. 9211, Rappler

is engaged in the business of mass
media and by its actuations
effectively admit that it is subject
to the foreign equity restriction
under Section 11(1), Article XVI of
the 1987 Constitution
Petitioners submit that Rappler is not engaged in the

business of mass media, therefore, the foreign equity restriction
under Section 11(1), Article XVI of the 1987 Constitution as
implemented by PD No. 1018 does not apply to it.
In the assailed Decision, the SEC En Banc adopted the

statutory definition of mass media found in RA No. 9211.
Adopting the statutory definition of mass media under PD

No. 1018, Rappler would not be considered as a mass media entity
because it is neither into print media nor broadcast media. On the
other hand, adopting the statutory definition of mass media under
RA No. 9211, Rappler would be considered as a mass media
entity.
In any case, Rappler cannot credibly claim that it is not

engaged in the business of mass media through its own actions
and actuations.
First, it has been held that the best proof of the purpose of a
corporation is its articles of incorporation and by-laws.58 The
Articles of Incorporation59 dated 25 July 2011 and Amended
58 Gala v. Ellice Agro-Industrial Corporation, G.R. No. 156819, 11 December 2003.

59 Petition, Rollo, p. 53
CA-G.R. SP. No. 154292
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Articles of Incorporation60 dated 16 April 2014 of Rappler states

that its primary purpose is “to design, develop, establish, market,
sell, maintain, support, distribute, customize, sell, re-sell and/or
operate news, information and social network services xxx via
web, internet, mobile, and other delivery formats xxx.”61
Second, as noted by the SEC En Banc, Rappler, in an online

article published in www.rappler.com,62 characterized itself as an
“all-digital news organization” and “online news site” that
“merges traditional television broadcasting with the internet” and
“combines the discipline and credibility of traditional print and
TV journalists” so that it can “join broadcasting network giants.”
Third, petitioners emphasized in their Petition that both

Rappler and RHC are wholly owned and managed by Filipinos:
4.1. RAPPLER was incorporated on 25 July 2011 by

Filipino citizens. Only Filipino citizens or corporations
wholly owned or managed by Filipino citizens are
stockholders of RAPPLER, or have ever been stockholders of
RAPPLER. Only RAPPLER stockholders are entitled to vote,
and have actually voted, these shares.
4.2. Only Filipino citizens have held positions of

Director or Officer of, and only Filipino citizens have
managed and controlled, RAPPLER. Further, editorial
decisions and decisions on content, i.e., what is published on
the various platforms of RAPPLER, are, and always have
been, made only by Filipino journalists who comprise its
Editorial Team. No foreigner has exercised control, whether
direct or indirect, over RAPPLER.63
60 Ibid.
61 Emphasis supplied.
62 The title of the online article is “Omidyar Network invests in Rappler,” published in
www.rappler.com on 5 November 2015.
63 Petition, Rollo, p. 19.
CA-G.R. SP. No. 154292
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xxx
4.15. RHC was incorporated on 14 December 2014 by

Filipino citizens. RHC was envisioned as a holding company
to consolidate the business of RAPPLER and other related
entities.
4.16. Since its incorporation, only Filipino citizens or

corporations wholly owned or managed by Filipino citizens
have been stockholders of RHC. Only RHC stockholders are
entitled to vote, and have actually voted their shares. Further,
only Filipino citizens have held the positions of Director or
Officer of RHC.64 (Emphasis supplied; citations omitted)
According to its 2015 General Information Sheet,65 Rappler is

100% or wholly-owned by Filipinos, to wit:
Shareholders of Rappler Shares Percentage
1. Rappler Holdings Corporation 112,217,181 98.77%
2. Maria Angelita Ressa 637,496 0.56%
3. Dolphin Fire Group. Inc. 436,535 0.38%
4. DMT Ice Angels Holdings, Inc. 211,221 0.19%
5. Benjamin So 38,671 0.03%
6. Ma. Teresa D. Vitug 25,000 0.02%
7. Glenda M. Gloria 25,000 0.02%
8. Ma. Rosario F. Hofilena 25,000 0.02%
9. Manuel I. Ayala 1 0.00%
10. Nico Jose Nolledo 1 0.00%
11. James C. Bitanga 1 0.00%
12. Felicia Atienza 1 0.00%
13. James Velasquez 1 0.00%
TOTAL 113,616,109 100.00%
Thus, Rappler's ownership and management, and even that

64 Id., at 24.
65 SEC Decision, Id., at 388.
CA-G.R. SP. No. 154292
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of RHC, are structured to comply with the foreign equity

restriction applicable to mass media entities.
Fourth, the issuance by RHC of PDR Instruments to NBM

and Omidyar, which involve Rappler, is designed to address
potential issues on compliance with the foreign equity restriction
applicable to mass media entities. As explained by petitioners, as
part of Rappler's goal to expand its operation globally, it sought
advice on how to properly and legally structure its business and
to secure investments from relevant impact investors, which
would not own or control Rappler but would provide funding
and add value to the business.66 The result of this is the issuance of
PDRs to NBM and Omidyar.
Lastly, as pointed out by the SEC En Banc, during the 2016

Presidential Election, Rappler filed a petition before the Supreme
Court against the Commission on Elections (COMELEC) when it
was denied access to live coverage of the presidential and vice-
presidential debates. In its petition, Rappler claimed that equal
access should be given to all mass media, online or traditional. In
Rappler, Inc. v. Bautista,67 the Supreme Court agreed with Rappler
and ruled that it is an online mass media entity and should be
granted equal right with traditional forms of mass media to
broadcast the debates via online live streaming.
Clearly, the above actions and actuations of Rappler,

militate against its claim that it is not engaged in the business of
mass media and thus, not covered by the foreign equity restriction

67 G.R. No. 222702, 5 April 2016.
CA-G.R. SP. No. 154292
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applicable to mass media entities.
The Foreign Equity Restriction

under Section 11(1), Article XVI of
the 1987 Constitution
It is settled that the interpretation of the provisions of the

Constitution lies with the courts, and ultimately, the Supreme
Court. In Gamboa v. Teves,68 the Supreme Court ruled:
Likewise, the opinions of the SEC en banc, as well as of

the DOJ, interpreting the law are neither conclusive nor
controlling and thus, do not bind the Court. It is hornbook
doctrine that any interpretation of the law that administrative
or quasi-judicial agencies make is only preliminary, never
conclusive on the Court. The power to make a final
interpretation of the law, in this case the term "capital" in
Section 11, Article XII of the 1987 Constitution, lies with this
Court, not with any other government entity. 69 (Emphasis
supplied)
In the case of foreign equity restriction under Section 11(1),

Article XVI of the Constitution, there is a dearth of jurisprudence
on the matter.
So far, the relevant jurisprudence on foreign equity

restrictions involve public utilities, i.e., Gamboa v. Teves and Roy v.
Herbosa.70 The Supreme Court noted in Gamboa that it took 75
years before it had the opportunity to interpret the constitutional
provision involved therein.
Accordingly, this case will likely be brought to the Supreme

68 G.R. No. 176579, 28 June 2011 (Decision); 29 October 2012 (Resolution).
69 G.R. No. 176579, 29 October 2012 (Resolution).
70 G.R. No. 207246, 22 November 2016.
CA-G.R. SP. No. 154292
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Court, which will ultimately make the final interpretation of said

provision on foreign equity restriction applicable to mass media.
The Voting Control Test and Full

Beneficial Ownership Test
In Gamboa, the Supreme Court applied the Voting Control

Test and the Full Beneficial Ownership Test in determining
compliance with the foreign equity restriction applicable to public
utilities.
The Supreme Court discussed the Voting Control Test and the
Full Beneficial Ownership Test in Gamboa, in this wise:
We agree with petitioner and petitioners-in-intervention.

The term capital in Section 11, Article XII of the 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 comprising both
common and non-voting preferred shares.
The Corporation Code of the Philippines classifies
shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of
stock of stock corporations may be divided into
classes or series of shares, or both, any of which
classes or series of shares may have such rights,
privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share
may be deprived of voting rights except those
classified and issued as preferred or redeemable
shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a
class or series of shares which have complete
voting rights. Any or all of the shares or series of
shares may have a par value or have no par value
as may be provided for in the articles of
incorporation: Provided, however, That banks,
trust companies, insurance companies, public
CA-G.R. SP. No. 154292
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utilities, and building and loan associations shall

not be permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by any
corporation may be given preference in the
distribution of the assets of the corporation in case
of liquidation and in the distribution of
dividends, or such other preferences as may be
stated in the articles of incorporation which are
not violative of the provisions of this Code:
Provided, That preferred shares of stock may be
issued only with a stated par value. The Board of
Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof:
Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof
with the Securities and Exchange Commission.
Shares of capital stock issued without par
value shall be deemed fully paid and non-
assessable and the holder of such shares shall not
be liable to the corporation or to its creditors in
respect thereto: Provided; That shares without par
value may not be issued for a consideration less
than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration
received by the corporation for its no-par value
shares shall be treated as capital and shall not be
available for distribution as dividends.
A corporation may, furthermore, classify
its shares for the purpose of insuring compliance
with constitutional or legal requirements.
Except as otherwise provided in the
articles of incorporation and stated in the
certificate of stock, each share shall be equal in all
respects to every other share.
Where the articles of incorporation provide
for non-voting shares in the cases allowed by this
Code, the holders of such shares shall
nevertheless be entitled to vote on the following
matters:
CA-G.R. SP. No. 154292
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1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with
another corporation or other corporations;
7. Investment of corporate funds in another
corporation or business in accordance with this
Code; and
8. Dissolution of the corporation.
Except as provided in the immediately
preceding paragraph, the vote necessary to
approve a particular corporate act as provided in
this Code shall be deemed to refer only to stocks
with voting rights.
Indisputably, one of the rights of a stockholder is the
right to participate in the control or management of the
corporation. This is exercised through his vote in the election of
directors because it is the board of directors that controls or
manages the corporation. In the absence of provisions in the
articles of incorporation denying voting rights to preferred
shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often
excluded from any control, that is, deprived of the right to vote
in the election of directors and on other matters, on the theory
that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. In
fact, under the Corporation Code only preferred or redeemable
shares can be deprived of the right to vote. Common shares
cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation
restricting the right of common shareholders to vote is invalid.
Considering that common shares have voting rights
which translate to control, as opposed to preferred shares
which usually have no voting rights, the term capital in Section
CA-G.R. SP. No. 154292
Decision
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11, Article XII of the Constitution refers only to common shares.

However, if the preferred shares also have the right to vote in
the election of directors, then the term capital shall include such
preferred shares because the right to participate in the control
or management of the corporation is exercised through the
right to vote in the election of directors. In short, the term
capital in Section 11, Article XII of the Constitution refers
only to shares of stock that can vote in the election of
directors.
This interpretation is consistent with the intent of the
framers of the Constitution to place in the hands of Filipino
citizens the control and management of public utilities. As
revealed in the deliberations of the Constitutional Commission,
capital refers to the voting stock or controlling interest of a
corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in
Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always
faced with this question: Where do we base the
equity requirement, is it on the authorized capital
stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation? Will the
Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long
discussion with the members of the team from the
UP Law Center who provided us a draft. The
phrase that is contained here which we adopted
from the UP draft is 60 percent of voting stock.
MR. NOLLEDO. That must be based on the
subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled
to vote.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation
in another corporation, say, a corporation with 60-
40 percent equity invests in another corporation
CA-G.R. SP. No. 154292
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which is permitted by the Corporation Code, does

the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of
the Committee.
MR. NOLLEDO. Therefore, we need additional
Filipino capital?
MR. VILLEGAS. Yes.
xxxx
MR. AZCUNA. May I be clarified as to that
portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the
Committee is the deletion of the phrase voting
stock or controlling interest.
MR. AZCUNA. Hence, without the Davide
amendment, the committee report would read:
corporations or associations at least sixty percent
of whose CAPITAL is owned by such citizens.
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is
lost, we are stuck with 60 percent of the capital to
be owned by citizens.
MR. AZCUNA. But the control can be with the
foreigners even if they are the minority. Let us
say 40 percent of the capital is owned by them,
but it is the voting capital, whereas, the Filipinos
own the nonvoting shares. So we can have a
situation where the corporation is controlled by
foreigners despite being the minority because
they have the voting capital. That is the anomaly
that would result here.
MR. BENGZON. No, the reason we eliminated
the word stock as stated in the 1973 and 1935
Constitutions is that according to Commissioner
Rodrigo, there are associations that do not have
stocks. That is why we say CAPITAL.
MR. AZCUNA. We should not eliminate the
phrase controlling interest.
CA-G.R. SP. No. 154292
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MR. BENGZON. In the case of stock

corporations, it is assumed. (Emphasis supplied)
Thus, 60 percent of the capital assumes, or should result
in, controlling interest in the corporation. Reinforcing this
interpretation of the term capital, as referring to controlling
interest or shares entitled to vote, is the definition of a
Philippine national in the Foreign Investments Act of 1991, to
wit:
SEC. 3. Definitions. - As used in this Act:
a. The term Philippine national shall mean a
citizen of the Philippines; or a domestic
partnership or association wholly owned by
citizens of the Philippines; or a corporation
organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned
and held by citizens of the Philippines; or a
corporation organized abroad and registered as
doing business in the Philippines under the
Corporation Code of which one hundred percent
(100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee
retirement or separation benefits, where the
trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That
where a corporation and its non-Filipino
stockholders own stocks in a Securities and
Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the
capital stock outstanding and entitled to vote of
each of both corporations must be owned and
held by citizens of the Philippines and at least
sixty percent (60%) of the members of the Board
of Directors of each of both corporations must be
citizens of the Philippines, in order that the
corporation, shall be considered a Philippine
national. (Emphasis supplied)
In explaining the definition of a Philippine national, the
Implementing Rules and Regulations of the Foreign
Investments Act of 1991 provide:
CA-G.R. SP. No. 154292
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b. Philippine national shall mean a citizen of the

Philippines or a domestic partnership or
association wholly owned by the citizens of the
Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty
percent [60%] of the capital stock outstanding
and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds
for pension or other employee retirement or
separation benefits, where the trustee is a
Philippine national and at least sixty percent
[60%] of the fund will accrue to the benefit of the
Philippine nationals; Provided, that where a
corporation its non-Filipino stockholders own
stocks in a Securities and Exchange Commission
[SEC] registered enterprise, at least sixty percent
[60%] of the capital stock outstanding and entitled
to vote of both corporations must be owned and
held by citizens of the Philippines and at least
sixty percent [60%] of the members of the Board
of Directors of each of both corporation must be
citizens of the Philippines, in order that the
corporation shall be considered a Philippine
national. The control test shall be applied for this
purpose.
Compliance with the required Filipino
ownership of a corporation shall be determined
on the basis of outstanding capital stock
whether fully paid or not, but only such stocks
which are generally entitled to vote are
considered.
For stocks to be deemed owned and held by
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.
Individuals or juridical entities not meeting the
aforementioned qualifications are considered as
non-Philippine nationals. (Emphasis supplied)
CA-G.R. SP. No. 154292
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Mere legal title is insufficient to meet the 60 percent

Filipino-owned capital required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate.
Otherwise, the corporation is considered as non-Philippine
national[s].
Under Section 10, Article XII of the Constitution,

Congress may reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose
capital is owned by such citizens, or such higher percentage as
Congress may prescribe, certain areas of investments. Thus, in
numerous laws Congress has reserved certain areas of
investments to Filipino citizens or to corporations at least sixty
percent of the capital of which is owned by Filipino citizens.
Some of these laws are: (1) Regulation of Award of
Government Contracts or R.A. No. 5183; (2) Philippine
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977; (4)
Philippine Overseas Shipping Development Act or R.A. No.
7471; (5) Domestic Shipping Development Act of 2004 or R.A.
No. 9295; (6) Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.
Hence, the term capital in Section 11, Article XII of the
Constitution is also used in the same context in numerous
laws reserving certain areas of investments to Filipino citizens.
To construe broadly the term capital as the total
outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and
letter of the Constitution that the State shall develop a self-
reliant and independent national economy effectively
controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility. 71 (Emphasis
and italics in the original; citations omitted)
71 G.R. No. 176579, 28 June 2011 (Decision).

CA-G.R. SP. No. 154292
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According to the Supreme Court, for stocks to be deemed

owned and held by Filipinos, mere legal title is not enough; full
beneficial ownership of the stocks, coupled with appropriate
voting rights is essential.
The Gamboa case echoed the provision in the IRR of RA 7042,

as amended by RA No. 8179, which states that “for stocks to be
deemed owned and held by 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.”
The IRR of the Securities Regulation Code defines beneficial

ownership, as follows:
3.1.2. Beneficial owner or beneficial ownership means 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 the power to dispose of, or direct the
disposition of such security); provided, that a person shall be
deemed to have an indirect beneficial ownership interest in any
security which is:
3.1.2.1. held by members of his immediate family

sharing the same household;
3.1.2.2. held by a partnership in which he is a

general partner;
3.1.2.3. held by a corporation in which he is a

controlling shareholder; or
3.1.2.4. subject to any contract, arrangement or

understanding which gives him voting power or
investment power with respect to such securities;
CA-G.R. SP. No. 154292
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provided, that the following persons or

institutions shall not be deemed to be beneficial
owners of securities held by them for the benefit
of third parties or in customer or fiduciary
accounts in the ordinary course of business, as
long as such shares were acquired by such
persons or institutions without the definite
and/or clear intention of effecting a change or
influencing the control of the Issuer:
3.1.2.4.1. A broker dealer;
3.1.2.4.2. An investment house

registered under the Investment
Houses Law;
3.1.2.4.3. A bank authorized to

operate by the Bangko Sentral ng
Pilipinas ("BSP");
3.I.2.4.4. A duly-registered insurance

company;
3.1.2.4.5. An investment company

registered under the Investment
Company Act;
3.1.2.4.6. A pension plan registered

with and regulated by the Bureau of
Internal Revenue, Insurance
Commission or any other regulatory
authority; and
3.1.2.4.7. An entity whose members

are the persons specified above.
xxx
In its Resolution in the Gamboa case, the Supreme Court

emphasized:
CA-G.R. SP. No. 154292
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V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent
Filipino ownership required by the Constitution to engage in
certain economic activities applies not only to voting control of
the corporation, but also to the beneficial ownership of the
corporation. To repeat, we held:
Mere legal title is insufficient to meet the
60 percent Filipino-owned "capital" required in
the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required.
The legal and beneficial ownership of 60 percent
of the outstanding capital stock must rest in the
hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the
corporation is "considered as non-Philippine
national[s]."
This is consistent with Section 3 of the FIA which

provides that where 100% of the capital stock is held by "a
trustee of funds for pension or other employee retirement or
separation benefits," the trustee is a Philippine national if "at
least sixty percent (60%) of the fund will accrue to the benefit
of Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for stocks to be
deemed owned and held by 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."
(Emphasis and italics in the original, citations omitted)
In Roy v. Herbosa, the Supreme Court further explained the

Full Beneficial Ownership Test, in the following manner:
The definition of "beneficial owner" or "beneficial

ownership" in the Implementing Rules and Regulations of the
Securities Regulation Code ("SRC-IRR") is consistent with the
concept of "full beneficial ownership" in the FIA-IRR.
CA-G.R. SP. No. 154292
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As defined in the SRC-IRR, "[b]eneficial owner or

beneficial ownership means 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 the power
to dispose of, or direct the disposition of such security) xxx."
While it is correct to state that beneficial ownership is

that which may exist either through voting power and/or
investment returns, it does not follow, as espoused by the
minority opinion, that the SRC-IRR, in effect, recognizes a
possible situation where voting power is not commensurate to
investment power. That is a wrong syllogism. The fallacy arises
from a misunderstanding on what the definition is for. The
"beneficial ownership" referred to in the definition, while it may
ultimately and indirectly refer to the overall ownership of the
corporation, more pertinently refers to the ownership of the
share subject of the question: is it Filipino-owned or not?
As noted earlier, the FIA-IRR states:
Compliance with the required Filipino ownership of a

corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not,
but only such stocks which are generally entitled to
vote are considered.
For stocks to be deemed owned and held by 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.
The emphasized portions in the foregoing provision is

the equivalent of the so-called "beneficial ownership test". That
is all.
The term "full beneficial ownership" found in the FIA-
IRR is to be understood in the context of the entire paragraph
defining the term "Philippine national". Mere legal title is not
enough to meet the required Filipino equity, which means that
CA-G.R. SP. No. 154292
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it is not sufficient that a share is registered in the name of a

Filipino citizen or national, i.e., he should also have full
beneficial ownership of the share. If the voting right of a share
held in the name of a Filipino citizen or national is assigned
or transferred to an alien, that share is not to be counted in the
determination of the required Filipino equity. In the same
vein, if the dividends and other fruits and accessions of the
share do not accrue to a Filipino citizen or national, then that
share is also to be excluded or not counted. (Italics and
underscoring in the original, emphasis supplied)
Following the above rulings in the Gamboa and Roy cases,

and applying them in the context of ownership and operation of
mass media, to comply with the foreign equity restriction, not
only should the 100% of the total outstanding capital stock and
the shares with voting rights be owned by Filipinos, in
compliance with the Voting Control Test, the right to receive
dividends and the right to vote must also be retained by the
Filipino shareholders who own 100% of the shares with voting
rights, in compliance with the Full Beneficial Ownership Test.
Prohibition on Foreign Control of

Mass Media
Since the constitutional provision limits both ownership and

management of mass media to Filipinos, the concept of control
comes into play. In the case of mass media, no foreign control is
permissible.
In the Gamboa case, the Supreme Court discussed the

concept of “effective control” in the context of “voting rights.”
According to the Supreme Court, the “right to participate in the
control or management of the corporation is exercised through the
right to vote in the election of directors” and “it is the board of
CA-G.R. SP. No. 154292
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directors that controls or manages the corporation.” Thus:
To construe broadly the term capital as the total

outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and
letter of the Constitution that the State shall develop a self-
reliant and independent national economy effectively
controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility. (Emphasis
supplied)
The Supreme Court gave an illustration of what it termed as

an “anomaly” on how control can be exercised by foreigners in
violation of foreign equity restrictions intended for the protection
of Filipino citizens:
We shall illustrate the glaring anomaly in giving a broad

definition to the term capital. Let us assume that a corporation
has 100 common shares owned by foreigners and 1,000,000
non-voting preferred shares owned by Filipinos, with both
classes of share having a par value of one peso (P1.00) per
share. Under the broad definition of the term capital, such
corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the
total outstanding capital stock is Filipino owned. This is
obviously absurd.
In the example given, only the foreigners holding the
common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a
minuscule equity of less than 0.001 percent, exercise control
over the public utility. On the other hand, the Filipinos, holding
more than 99.999 percent of the equity, cannot vote in the
election of directors and hence, have no control over the public
utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution,
to place the control of public utilities in the hands of Filipinos.
It also renders illusory the State policy of an independent
national economy effectively controlled by Filipinos.
CA-G.R. SP. No. 154292
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The example given is not theoretical but can be found in

the real world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied
of the right to vote in the election of directors. PLDTs Articles
of Incorporation expressly state that the holders of Serial
Preferred Stock shall not be entitled to vote at any meeting of
the stockholders for the election of directors or for any other
purpose or otherwise participate in any action taken by the
corporation or its stockholders, or to receive notice of any
meeting of stockholders.
On the other hand, holders of common shares are
granted the exclusive right to vote in the election of directors.
PLDTs Articles of Incorporation state that each holder of
Common Capital Stock shall have one vote in respect of each
share of such stock held by him on all matters voted upon by
the stockholders, and the holders of Common Capital Stock
shall have the exclusive right to vote for the election of
directors and for all other purposes.
In short, only holders of common shares can vote in the
election of directors, meaning only common shareholders
exercise control over PLDT. Conversely, holders of preferred
shares, who have no voting rights in the election of directors,
do not have any control over PLDT. In fact, under PLDTs
Articles of Incorporation, holders of common shares have
voting rights for all purposes, while holders of preferred shares
have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute,
that foreigners hold a majority of the common shares of PLDT.
In fact, based on PLDTs 2010 General Information Sheet (GIS),
which is a document required to be submitted annually to the
Securities and Exchange Commission, foreigners hold
120,046,690 common shares of PLDT whereas Filipinos hold
only 66,750,622 common shares. In other words, foreigners
hold 64.27% of the total number of PLDTs common shares,
while Filipinos hold only 35.73%. Since holding a majority of
the common shares equates to control, it is clear that foreigners
exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign
ownership of public utilities expressly mandated in Section 11,
Article XII of the Constitution.
CA-G.R. SP. No. 154292
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Moreover, the Dividend Declarations of PLDT for 2009,

as submitted to the SEC, shows that per share the SIP preferred
shares earn a pittance in dividends compared to the common
shares. PLDT declared dividends for the common shares
at P70.00 per share, while the declared dividends for the
preferred shares amounted to a measly P1.00 per share. So the
preferred shares not only cannot vote in the election of
directors, they also have very little and obviously negligible
dividend earning capacity compared to common shares.
As shown in PLDTs 2010 GIS, as submitted to the SEC,
the par value of PLDT common shares is P5.00 per share,
whereas the par value of preferred shares is P10.00 per share. In
other words, preferred shares have twice the par value of
common shares but cannot elect directors and have only 1/70
of the dividends of common shares. Moreover, 99.44% of the
preferred shares are owned by Filipinos while foreigners own
only a minuscule 0.56% of the preferred shares. Worse,
preferred shares constitute 77.85% of the authorized capital
stock of PLDT while common shares constitute only 22.15%.
This undeniably shows that beneficial interest in PLDT is not
with the non-voting preferred shares but with the common
shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a
public utility.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipinos in
accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is constitutionally
required for the States grant of authority to operate a public
utility. The undisputed fact that the PLDT preferred shares,
99.44% owned by Filipinos, are non-voting and earn only 1/70
of the dividends that PLDT common shares earn, grossly
violates the constitutional requirement of 60 percent Filipino
control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the
voting stock, and earn less than 60 percent of the dividends,
of PLDT. This directly contravenes the express command in
Section 11, Article XII of the Constitution that [n]o franchise,
certificate, or any other form of authorization for the operation
of a public utility shall be granted except to xxx corporations
CA-G.R. SP. No. 154292
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xxx organized under the laws of the Philippines, at least sixty

per centum of whose capital is owned by such citizens xxx.
To repeat, (1) foreigners own 64.27% of the common
shares of PLDT, which class of shares exercises the sole right to
vote in the election of directors, and thus exercise control over
PLDT; (2) Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus do not
exercise control over PLDT; (3) preferred shares, 99.44% owned
by Filipinos, have no voting rights; (4) preferred shares earn
only 1/70 of the dividends that common shares earn; (5)
preferred shares have twice the par value of common shares;
and (6) preferred shares constitute 77.85% of the authorized
capital stock of PLDT and common shares only 22.15%. This
kind of ownership and control of a public utility is a mockery
of the Constitution.
Incidentally, the fact that PLDT common shares with a
par value of P5.00 have a current stock market value of
P2,328.00 per share, while PLDT preferred shares with a par
value of P10.00 per share have a current stock market value
ranging from only P10.92 to P11.06 per share, is a glaring
confirmation by the market that control and beneficial
ownership of PLDT rest with the common shares, not with the
preferred shares.
Indisputably, construing the term capital in Section 11,
Article XII of the Constitution to include both voting and non-
voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a
clear abdication of the States constitutional duty to limit control
of public utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision reserving
certain areas of investment to Filipino citizens, such as the
exploitation of natural resources as well as the ownership of
land, educational institutions and advertising businesses. The
Court should never open to foreign control what the
Constitution has expressly reserved to Filipinos for that would
be a betrayal of the Constitution and of the national interest.
The Court must perform its solemn duty to defend and uphold
the intent and letter of the Constitution to ensure, in the words
of the Constitution, a self-reliant and independent national
economy effectively controlled by Filipinos.72 (Emphasis and
italics in the original; citations omitted)
72 Ibid.
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While in the Gamboa case, “control” was equated to “voting

rights,” under Rule 3.1.8 of the 2015 IRR of the SRC, the concept of
“control” was expounded to include other means of gaining
control, to wit:
3.1.8. Control is the power to determine the financial and

operating policies of an entity in order to benefit from its
activities. It is presumed to exist when the parent entity owns,
directly or through subsidiaries and/or associates, more than
fifty percent (50%) of the voting power of an entity. It also exists
when the parent entity owns fifty percent (50%) or less of the
voting power of an entity, but has any of the following powers:
3.1.8.1. Over more than fifty percent (50%)

of the voting rights by virtue of an agreement
with other investors;
3.1.8.2. To govern the financial and

operating policies of the entity under a statute or
agreement;
3.1.8.3. To appoint or remove the majority

of the members of the board of directors or
equivalent governing body; or
3.1.8.4. To cast the majority of votes at

meetings of the board of directors or equivalent
governing body.
As shown above, there are a number of ways by which

control of a corporation can be attained regardless of ownership
of shares of stock or existence of voting rights. Justice Presbitero
Velasco, Jr. gave the following illustration in his Concurring
Opinion in the Roy case:
A construction of "capital" as referring to the total

shareholdings of the company is an acknowledgment of the
existence of numerous corporate control-enhancing
CA-G.R. SP. No. 154292
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mechanisms, besides ownership of voting rights, that limits the

proportion between the separate and distinct concepts of
economic right to the cash flow of the corporation and the right
to corporate control (hence, they are also referred to as
proportionality-limiting measures). This corporate reality is
reflected in SRC Rule 3 (E) of the Amended Implementing
Rules and Regulations (IRR) of the SRC and Sec. 3 (g) of The
Real Estate Investment Trust Act (REIT) of 2009, which both
provide that control can exist regardless of ownership of
voting shares. The SRC IRR states: xxx
As shown above, ownership of voting shares or power

alone without economic control of the company does not
necessarily equate to corporate control. A shareholder's
agreement can effectively clip the voting power of a shareholder
holding voting shares. In the same way, a voting right ceiling,
which is "a restriction prohibiting shareholders to vote above a
certain threshold irrespective of the number of voting shares
they hold," can limit the control that may be exerted by a
person who owns voting stocks but who does not have a
substantial economic interest over the company. So also does
the use of financial derivatives with attached conditions to
ensure the acquisition of corporate control separately from the
ownership of voting shares, or the use of supermajority
provisions in the by-laws and articles of incorporation or
association. Indeed, there are innumerable ways and means,
both explicit and implicit, by which the control of a corporation
can be attained and retained even with very limited voting shares,
i.e., there are a number of ways by which control can be
disproportionately increased compared to ownership so long
as economic rights over the majority of the assets and equity of
the corporation are maintained. (Emphasis, italics and
underscoring in the original)
Indeed, the capacity to control a corporation may also exist

without owning shares of stock or voting rights in that
corporation through corporate control-enhancing mechanisms
that limit the voting powers or reduce the voting shares of a
shareholder.
CA-G.R. SP. No. 154292
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RHC's issuance of PDRs and the

Concept of “Negative Control”
applied by the SEC on the
Omidyar PDR through its Clause
12.2.2
A PDR is defined as a security which grants the holder the

right to the delivery or sale of the underlying share, and to certain
other rights including additional PDR or adjustments to the terms
or upon the occurrence of certain events in respect of rights issues,
capital reorganizations, offers and analogous events or the
distribution of cash in the event of a cash dividend on the shares.
PDRs are not evidences or statements nor certificates of
ownership of a corporation. For as long as the PDRs are not
exercised, the shares underlying the PDRs are and will continue to
be registered in the name of, and owned by, and all rights
pertaining to the shares shall be exercised by the issuer.73
As stated before, RHC issued PDRs to two entities NBM

Rappler, L.P. and Omidyar. Petitioners allege that Rappler sought
legal advice on how to properly and legally structure its business
and investment package and in due course, was made aware that
SkyCable and Globe Telecom, Inc. and even mass media
companies, such as ABS CBN Corporation (ABS-CBN) and GMA
Network, Inc. (GMA 7), secure funding from their parent holding
companies, which sold PDRs to foreigners.74
The subject of the present case is the 7,217,257 PDRs issued

by RHC to Omidyar only. It is undisputed that said PDRs do not
make Omidyar a shareholder of Rappler.
73 http://www.pseacademy.com.ph/LM/glossary/Glossary.html
CA-G.R. SP. No. 154292
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The Omidyar PDR contains the following provision:
12.2 The Issuer undertakes to cause the Company from the date
hereof and while the ON PDRs are outstanding:
xxx
12.2.2 not to, without prior good faith discussion with ON PDR
Holders and without the approval of PDR Holders holding at
least two thirds (2/3s) of all issued and outstanding PDRs, alter,
modify or otherwise change the Company Articles of
Incorporation or By-Laws or take any other action where such
alteration, modification, change or action will prejudice the
rights in relation to the ON PDRs; xxx
According to petitioners, the SEC approved PDRs (of parent

companies of listed companies with nationality restrictions), the
terms of which are similar to those of the Omidyar PDR.75
In their Verified Explanation submitted before the Special

Panel, petitioners explained the reason for the insertion of Clause
12.2.2 in the Omidyar PDR in the following manner:
To give context to the intention of the parties to the ON

PDR as regards securing two-thirds (2/3) vote of all PDR
Holders of RHC, it is important to remember that, at the time
Omidyar Network Fund, L.L.C. decided to purchase the RHC
PDR, NBM Rappler, L.P. had already purchased PDRs from
RHC. Also, NBM Rappler, L.P. purchased more RHC PDRs
than Omidyar Network Fund, L.L.C.
On account of this situation, Omidyar Network Fund,

L.L.C. was concerned that it was at a disadvantage because of
the possibility that RHC may later agree to give NBM Rappler,
L.P. more benefits than Omidyar Network Fund, L.L.C. Also,
Omidyar Network Fund, L.L.C. did not want to be placed at a
further disadvantage if RHC sells PDRs to other investors.
75 Id., at 16.
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For these reasons and to protect its investment, Omidyar

Network Fund, L.L.C. had RHC agree to secure the approval of
at least two-thirds (2/3) of all the PDR Holders before RHC
takes any action that would prejudice the rights of Omidyar
Network under the ON PDR, which rights do not include
ownership and control over RAPPLER or RHC. Since, NBM
Rappler, L.P. does not have a sufficient number of PDRs to
muster two-thirds (2/3) of the total number of all PDRs issued
by RHC, these two (2) parties will not be able to take action to
prejudice the rights of Omidyar Network Fund, L.L.C. without
also securing its approval.76
In the assailed Decision,the SEC En Banc zeroed in on Clause

12.2.2 of the Omidyar PDR in discussing petitioners' alleged
violation of the foreign equity restriction on mass media under the
1987 Constitution, thus:
As already discussed, the “Company” is Rappler, Inc.

Thus, the ON PDR imposes obligations not just on the Issuer of
the derivative, Rappler Holdings Corporation, but also on the
Company which issued the underlying shares, Rappler, Inc.
The ON PDR instrument may be categorized as an equity
derivative, since its value is dependent on the underlying
equity. It follows that legal and economic rights granted to the
ON PDR Holders can be traced back to the legal and economic
rights originally reserved to the shareholders. The Foreign
Equity Restriction will prevent even the grant of minimal
control through the ON PDR.
The Foreign Equity Restriction is very clear. Anything

less than One Hundred Percent (100%) Filipino control is a
violation. Conversely, anything more than exactly Zero percent
(0%) foreign control is a violation.
Here, the stockholders must have prior discussion with

and approval of at least 2/3 of the PDR Holders, meaning
Rappler is at the very least under obligation to consult with
Omidyar Network. The stockholder has become, in effect,
subservient to the holder. It is neither 100% control by the
Filipino stockholders, nor is it 0% control by the foreigner
76 Annex “D”, Petition, Id., at 164-165.
CA-G.R. SP. No. 154292
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PDR holders.
Respondents wrongly assume that “control” is limited to

stock ownership; they repeatedly stated in their Verified
Explanation that (1) all their stockholders are Filipino, and that
(2) any economic benefits derived by foreign holders from the
ON PDR are mere “distributions” and not strictly “dividends.”
Upon that erroneous premise, respondents proudly stated that
“Clause 12.2.2 of the ON PDR does not give Omidyar Network
Fund LLC xxx any form of control over Rappler.”
In their estimation, perhaps, because the “prior

discussion” and “approval” of corporate matters only when it
“will prejudice” the PDR Holders, i.e. only sometimes, and
because there is no transfer of shares, the stockholders being all-
Filipino and seemingly compliant, there is no grant of control.
However, as already stated, the Commission has already
interpreted “control” as embracing not only stock ownership,
but also other schemes that grant influence over corporate
policy, actions and structure – even “sometimes.”
It does not matter what capacity or device gives the

foreigner control, as stockholder or holder or otherwise, there
must be none. It does not matter if control is only available in
certain occasions, there must be no occasion.
Where Mass Media is concerned, no control whatsoever

may be granted. 100% Filipino control means 0% foreign
control. “Control” is any influence over corporate policy, and
not limited to ownership of stock.77 (Emphasis and
underscoring in the original)
As stated above, the SEC En Banc ruled that foreign control

over Rappler was granted to Omidyar through Clause 12.2.2 of
the Omidyar PDR because the said Clause obligates Rappler to
hold prior discussions and approval with at least 2/3 of the
holders of the PDRs with RHC, such that Rappler is at the very
least under obligation to consult with Omidyar and thus, the
77 SEC Decision, Id., at 380-381.

CA-G.R. SP. No. 154292
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stockholder allegedly has become, in effect, subservient to the

holder.
According to the SEC En Banc, Clause 12.2.2 granted

Omidyar Network a “negative control” of Rappler. Thus:
This is not an insignificant paragraph. It was intended to

“assure” Omidyar Network a preferential, or at least equal,
standing as opposed to (1) other PDR Holders, and more
importantly, (2) the Issuer – it grants negative control. In fact,
Omidyar Network specifically negotiated with Rappler to
insert Paragraph 12.2.2 in the ON PDR as stated by respondents
themselves, viz:
xxx.78 (Emphasis supplied)
The SEC En Banc explained that “control” is defined under

Rule 3.1.8 of the 2015 SRC IRR as “the power to determine the
financial and operating policies of an entity in order to benefit
from its activities” and “control” is “intentionally broad and does
not equate with either ownership of shares of stock or with
management as director or officer.”
Petitioners submit that the good faith discussion with and

approval of Omidyar is required only when the actions taken by
Rappler will prejudice the rights of Omidyar in relation to the
Omidyar PDR. Petitioners further submit that Clause 12.2.2 of the
Omidyar PDR “is actually no more than a dispute mechanism
provision that spells out the procedure to be followed by the
parties in the event that RHC decides to alter, modify, change or
take action on the Articles of Incorporation or By-Laws of
Rappler.”79
78 Id., at 381.
CA-G.R. SP. No. 154292
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It bears stressing that the foreign equity restriction on mass

media implies “zero” foreign control. It thus includes any
appearance of control that will influence the corporate actions and
decisions of Rappler. Also, it does not matter whether the
approval from Omidyar is required only when the actions taken
by Rappler will prejudice the rights of Omidyar, because RHC,
will still nonetheless be required to secure the approval of at least
2/3 of the PDR Holders before Rappler can carry out or
implement any action which has the effect of altering, modifying
or otherwise changing Rappler's Articles of Incorporation or By-
laws or take any other action where such alteration, modification,
change or action will prejudice the rights in relation to the
Omidyar PDR.
Petitioners next contend that Clause 12.2.2 is merely a

negative covenant intended to safeguard the interests of Omidyar.
A negative covenant is defined as “a covenant that requires

a party to refrain from doing something.” 80 While it is true that a
negative covenant has long been accepted in this jurisdiction and
is commonly embedded in some commercial or financial
agreements such as loan agreements, Clause 12.2.2 is more than
just a negative covenant.
In loan agreements, the usual consideration why negative

covenants are put in place is to ensure that the creditors will be
paid of the loan. Here, the consideration for the insertion of
Clause 12.2.2 effectively allows Omidyar to participate in the
corporate actions and decisions of Rappler.
80 Black's Dictionary, 7th Edition.

CA-G.R. SP. No. 154292
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It should be pointed out that the amendment of the Articles

of Incorporation or By-laws is a corporate act reserved by law to
the board of directors and stockholders of a corporation. Under
Section 1681 of the Corporation Code, an amendment of the
Articles of Incorporation is exercised by a majority vote of the
board of directors and the vote or written assent of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock. Meanwhile, under Section 4882 of the
Corporation Code, an amendment of the By-laws is exercised by a
majority vote of the board of directors and the owners of at least a
majority of the outstanding capital stock.
Through Clause 12.2.2, this corporate act of amending the

Articles of Incorporation or By-laws, which is a fundamental
corporate action reserved by law to the board of directors and
stockholders of a corporation, is subject to prior discussion and
approval of Omidyar, a foreign entity.
Moreover, one of the rights of a shareholder is to vote on
81 Section 16. Amendment of Articles of Incorporation. – Unless otherwise prescribed by this

Code or by special law, and for legitimate purposes, any provision or matter stated in the
articles of incorporation may be amended by a majority vote of the board of directors or
trustees and the vote or written assent of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the provisions of this Code, or the vote or
written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation.
xxx
82 Section 48. Amendments to by-laws. – The board of directors or trustees, by a majority vote
thereof, and the owners of at least a majority of the outstanding capital stock, or at least a
majority of the members of a non-stock corporation, at a regular or special meeting duly
called for the purpose, may amend or repeal any by-laws or adopt new by-laws. The
owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the
members in a non-stock corporation may delegate to the board of directors or trustees the
power to amend or repeal any by-laws or adopt new by-laws: Provided, That any power
delegated to the board of directors or trustees to amend or repeal any by-laws or adopt
new by-laws shall be considered as revoked whenever stockholders owning or
representing a majority of the outstanding capital stock or a majority of the members in
non-stock corporations, shall so vote at a regular or special meeting. xxx
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certain corporate acts, including amending the Articles of

Incorporation or By-laws. As stated above, in the Gamboa case, the
Supreme Court equated “voting rights” to “effective control”
because according to them, the “right to participate in the control
or management of the corporation is exercised through the right
to vote in the election of directors” and “it is the board of directors
that controls or manages the corporation.”
In the present case, while the Omidyar PDR states that the
right to vote on the Rappler shares is retained by RHC, said right
to vote is being shared with or exercised jointly by RHC, as the
owner of the shares, and Omidyar, through Clause 12.2.2. Thus,
under a “zero” foreign control standard, it would appear that this
is tantamount to some foreign control.
The Requirements of Procedural

Due Process in Cases before
Administrative Agencies like the
SEC
The 2016 Rules of Procedure of the SEC (2016 SEC Rules)

provide for the manner by which investigation proceedings and
administrative actions before the SEC are conducted.
Section 2-1, Rule II, Part II of the SEC Rules provides that an
investigation for possible violation of laws, rules, regulations,
circulars and orders being implemented by the SEC may be
commenced by the Operating Department that has authority over
the subject matter, either motu proprio, or upon receipt of a
complaint from the public, a referral from a government
instrumentality or a self-regulatory organization, or an
CA-G.R. SP. No. 154292
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anonymous tip.
After the resolution of the investigation, the Operating

Department, may, in its discretion, take one or more of the
following actions:
(a) Initiate an administrative action for the imposition

of corresponding administrative sanctions or
penalties;
(b) Continuously monitor compliance by the

corporation or such other person with the laws, rules,
regulations, circulars and orders being implemented
by the Commission; or
(c) Refer the matter to the Commission En Banc, and

secure the latter's approval of the request made by
domestic and foreign governmental authorities or
foreign securities authorities, self-regulatory
organizations, and other persons or entities, for access
of files in relation to the investigation.83
Should the Operating Department decide to initiate an

administrative action for the imposition of corresponding
administrative sanctions or penalties, it may be commenced upon
the issuance of a Formal Charge by the Operating Department that
has authority to act over the subject matter, or upon the issuance
of an ex-parte cease and desist order by the SEC En Banc.84 The
Formal Charge shall “contain a specification of charge/s, a brief
83 Section 2-7, Rule II, Part II of the 2016 SEC Rules.

84 Section 3-1, Rule III, Part II of the 2016 SEC Rules.
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statement of material or relevant facts, accompanied by certified

true copies of the documentary evidence, if any, sworn statements
covering the testimonies of witnesses, and a directive to file a
Verified Answer.”85
After the Verified Answer is filed,86 the Operating

Department shall render a decision.87 It should be noted that
under the 2016 SEC Rules, a supplemental pleading may also be
filed by the respondent “for the purpose of clarifying and
supplementing facts, issues and other matters that are relevant
and necessary to the proceedings, including but not limited to
those that are raised after the filing of the Verified Answer.”88
Further, before the rendition of a decision, the Operating

Department, in its discretion, may conduct a clarificatory
conference “for the purpose of ascertaining facts, issues and other
matters necessary and relevant to the resolution of the
proceedings, and further examination or submission of additional
documents pertinent thereto.”89
After the decision is rendered, a party may file a Motion for

Reconsideration of an adverse decision of the Operating
Department.90 Thereafter, a party may file an appeal to the SEC En
Banc.91
In addition to the proceeding before the Operating

90 Section 2-1, Rule II, Part V of the 2016 SEC Rules.
91 Section 3-1, Rule II, Part V of the 2016 SEC Rules.
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Department, a Special Hearing Panel may also be created by the

SEC En Banc in cases involving public interest and falling within
the authority of multiple Operating Departments requiring close
coordination between them. The Special Hearing Panel shall be
composed of at least three (3) members from these Operating
Departments for the conduct of hearing, investigation and
proceedings.92
In the present case, it appears that the SEC did not follow
the above procedure. Pursuant to SEC Resolution No. 437, Series of
2017,93 it constituted a Special Panel to determine possible
violations of petitioners under several laws under its mandate, to
wit:
RESOLVED, to constitute the ZW Task Force as a Special

Panel/Investigating Body, for purposes of conducting a formal,
in-depth examination of Rappler, Inc., and of its parent,
Rappler Holdings Corp., as to possible violations of the
nationality restrictions on ownership and/or control of Mass
Media entities, in relation to the Anti-Dummy Law, as well as
possible violations of the Corporation Code, the Securities
Regulations Code, and other laws within the Commission's
mandate.
Pursuant to said SEC Resolution, the Special Panel issued a

Show Cause Order94 dated 1 August 2017 directing petitioners to
file a sworn statement/explanation within fifteen days from
receipt thereof. In response, petitioners filed their Verified
Explanation95 dated 26 August 2017.
On 27 September 2017, the Special Panel issued an Order for

92 Section 2-3, Rule II, Part I of the 2016 SEC Rules.
93 Annex “Q”, Petition, Rollo, p. 361.
94 Annex “I”, Petition, Id., at 301-304.
95 Annex “D”, Petition, Id., at 142-182.
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the Production of Documents96 and the same was complied by

petitioners when they submitted their Verified Compliance97 on 12
October 2017. On 22 December 2017, petitioners filed a Verified
Supplemental Compliance.98
Thereafter, on 10 January 2018, the Special Panel submitted

to the SEC En Banc their recommendation as contained in the
Investigation Report.99
On 11 January 2018, or a day after, the SEC En Banc

rendered the assailed Decision adopting in toto the Investigation
Report of the Special Panel.
Petitioners submit that the procedure adopted by the SEC

denied them of their constitutional right to due process of law
based on the following grounds: (a) the SEC En Banc applied to
them a procedure different from that found in the 2016 SEC Rules;
(b) the SEC En Banc did not have the authority to adjudge them
administratively liable and to impose on them administrative
sanctions; (c) the Special Panel had already adjudged petitioners
liable when it issued the Show Cause Order; (d) the supposed
Investigation Report of the Special Panel was never presented to
petitioners; (e) no formal administrative charge was instituted
against petitioners; and (f) the SEC En Banc did not make its own
independent consideration of the facts and the laws as it simply
accepted the recommendations of the Special Panel.100
96 Annex “L”, Petition, Id., at 312-313.

97 Annex “M”, Petition, Id., at 315-317.
98 Annex “N”, Petition, Id., at 339-340.
99 Annex “I”, OSG Comment, Id., at 489-517.
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The Court notes that the Office of the Solicitor General

(OSG) does not dispute that the above procedure under the 2016
SEC Rules was not observed in this case. Rather, the OSG argues
that petitioners were not denied due process since they were
afforded the opportunity to present their defenses when they
submitted their Verified Explanation before the assailed Decision
was issued by the SEC En Banc.
Although the Court agrees with petitioners' contention that

the administrative procedure under 2016 SEC Rules was not
observed to the letter by the SEC in this case, the same does not,
by itself, amount to a violation of procedural due process.
It has been held that the essence of due process, as applied

to administrative proceedings, means a fair and reasonable
opportunity to explain one's side, or an opportunity to seek a
reconsideration of the action or ruling complained of. Due process
in administrative proceedings cannot be fully equated with due
process in its strict judicial sense, for in the former a formal or
trial-type hearing is not always necessary, and technical rules of
procedure are not strictly applied.101 As ruled by the Supreme
Court in Nestle Philippines, Inc. v. Puedan,102 citing the case of
Ledesma v. Court of Appeals:103
Due process, as a constitutional precept, does not always

and in all situations require a trial-type proceeding. Due process
is satisfied when a person is notified of the charge against him
and given an opportunity to explain or defend himself. In
administrative proceedings, the filing of charges and giving
reasonable opportunity for the person so charged to answer the
101 Vivo v. PAGCOR, G.R. No. 187854, 12 November 2013.

102 G.R. No. 220617, 30 January 2017.
103 G.R. No. 166780, 27 December 2007.
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accusations against him constitute the minimum requirements

of due process. The essence of due process is simply to be
heard, or as applied to administrative proceedings, an
opportunity to explain ones side, or an opportunity to seek a
reconsideration of the action or ruling complained of.
(Emphasis supplied)
Further, in Primanila Plans v. SEC,104 the Supreme Court

ruled that procedural due process is satisfied if the entity subject
of an investigation was apprised of the results of the
investigation and given the reasonable opportunity to present its
defense. Thus:
The SEC was not mandated to allow Primanila to

participate in the investigation conducted by the Commission
prior to the cease and desist order’s issuance. Given the
circumstances, it was sufficient for the satisfaction of the
demands of due process that the company was amply apprised
of the results of the SEC investigation, and then given the
reasonable opportunity to present its defense. Primanila was
able to do this via its motion to reconsider and lift the cease and
desist order. After the CED filed its comment on the motion,
Primanila was further given the chance to explain its side to the
SEC through the filing of its reply. "Trite to state, a formal trial
or hearing is not necessary to comply with the requirements of
due process. Its essence is simply the opportunity to explain
one’s position."
In SEC v. Universal Rightfield Property Holdings,Inc.,105 the

Supreme Court further discussed the requirements of procedural
due process in administrative proceedings before the SEC, thus:
On the one hand, the SEC contends that URPHI was

accorded all the opportunity to be heard and comply with all
the reportorial requirements before the Order of Revocation
was issued. Specifically, in the Order dated July 27, 2004
suspending URPHI's registration of securities for 60 days, the
104 G.R. No. 193791, 6 August 2014.

105 G.R. No. 181381, 20 July 2015.
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SEC expressly warned that such registration would be revoked

should it persistently fail to comply with the said requirements.
Still, URPHI continuously failed to submit the required reports.
On August 23, 2004, the SEC directed again URPHI to submit
the required report and to show cause why it should not be
held liable for violation of the law. Instead of submitting the
required reports, URPHI requested for a final extension, or until
November 15, 2004, within which to comply with its reportorial
requirements. For URPHI's failure to submit the said reports,
the SEC issued the Order of Revocation dated December 8,
2004. URPHI immediately filed a motion for reconsideration
thereof through a Notice of Appeal and a Memorandum both
dated January 3, 2005, which the SEC later denied in the
Resolution dated December 15, 2005. Hence, URPHI was amply
accorded its guaranteed right to due process.
The SEC also submits that the factual milieu of Globe

Telecom, Inc. cited by the CA in its Decision is starkly different
from this case. Unlike in the former case where the Court ruled
that the fine imposed by the National Telecommunications
Commission without notice and hearing, was null and void due
to the denial of petitioner's right to due process, the SEC points
out that URPHI was duly notified of its violations and the
corresponding penalty that may be imposed should it fail to
submit the required reports, and was given more than enough
time to comply before the Order of Revocation was issued. The
SEC adds that a hearing was conducted on July 6, 2004 as to
URPHI's repeated failure to submit the reportorial
requirements as mandated by the SRC and its implementing
rules and regulations, which was the basis in issuing the said
Order.
On the other hand, URPHI insists that the CA was

correct in ruling that the SRC requires separate notices and
hearings for revocation and suspension of registration of
securities and permit to sell them to the public. It then asserts
that the warning contained in the SEC's suspension Order
dated July 27, 2004 does not meet the requirement of notice
under the SRC. It stresses that while the SEC issued a separate
notice of hearing for such suspension, no similar notice was
issued as regards such revocation. It also notes that the July 6,
2004 hearing was with regard to the suspension of its
registration of securities, and that no hearing was ever
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conducted for purposes of revocation of such registration.
On the SEC's claim that URPHI was afforded due

process because it was already given the opportunity to seek a
reconsideration of the Order of Revocation by filing its Notice
of Appeal and Memorandum, URPHI argues that the filing of
such appeal did not cure the violation of its right to due
process. In support of its argument, URPHI cites the Globe
Telecom, Inc. ruling that notice and hearing are indispensable
when an administrative agency exercises quasi-judicial
functions and that such requirements become even more
imperative if the statute itself demands it.
URPHI further cites the ruling in BLTB, Co. v. Cadiao, et

al., to support its view that a motion for reconsideration is
curative of a defect in procedural due process only if a party is
given sufficient opportunity to explain his side of the
controversy. It claims that the controversy referred to is the
underlying substantive controversy of which the procedural
due process controversy is but an offshoot. Noting that the only
issue raised in its appeal was procedural, i.e., whether it was
denied prior notice and hearing under the SRC, URPHI
contends that it cannot be said that by appealing to the SEC, it
had the opportunity to explain its side on substantive
controversy which pertains to its alleged violation of the SRC
and failure to comply with the reportorial requirements that
prompted the SEC to issue the Order of Revocation. Hence,
such appeal cannot be considered curative of the defect in
procedural due process which attended the issuance of the said
Order.
URPHI further submits that the prior revocation of its

registration on May 29, 2003 did not cure the lack of due
process which attended the revocation of its registration on
December 8, 2004. Since the SEC deemed it proper to lift the
prior revocation, such can no longer be used to sustain another
revocation order, much less one issued without prior notice and
hearing. Granted that it was accorded due process, URPHI
asserts that the revocation of its registration of securities and
permit to sell them to the public is inequitable under the
circumstances. It calls attention to the severe and certain
consequences of such revocation, i.e., termination of the public
offering of its securities, return of payments received from
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purchasers thereof, and its delisting from the PSE, which will
cause financial ruin and jeopardize its efforts to recover from its
current financial distress. Claiming that it exerted best effort
and exercised good faith in complying with the reportorial
requirements, URPHI avers that the interest of the investing
public will be better served if, instead of revoking its
registration of securities, the SEC will merely impose penalties
and allow it to continue as a going concern in the hope that it
may later return to profitability.
The petition is meritorious.
xxx
The Court has consistently held that the essence of due

process is simply an opportunity to be heard, or as applied to
administrative proceedings, an opportunity to explain one's
side or an opportunity to seek a reconsideration of the action
or ruling complained of. Any seeming defect in its observance
is cured by the filing of a motion for reconsideration, and
denial of due process cannot be successfully invoked by a
party who has had the opportunity to be heard on such
motion. What the law prohibits is not the absence of previous
notice, but the absolute absence thereof and the lack of
opportunity to be heard.
xxx
Contrary to the view that a separate notice of hearing to

revoke is necessary to initiate the revocation proceeding, the
Court holds that such notice would be a superfluity since the
Order dated July 27, 2004 already states that such proceeding
shall ensue if URPHI would still fail to submit the reportorial
requirements after the lapse of the 60-day suspension period.
After all, "due notice" simply means the information that
must be given or made to a particular person or to the public
within a legally mandated period of time so that its recipient
will have the opportunity to respond to a situation or to
allegations that affect the individual's or public's legal rights
or duties.
Granted that no formal hearing was held before the

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issuance of the Order of Revocation, the Court finds that there

was substantial compliance with the requirements of due
process when URPHI was given opportunity to be heard.
Upon receipt of the SEC Order dated July 27, 2004, URPHI filed
the letters dated September 13 and 28, 2004, seeking a final
extension to submit the reportorial requirements, and admitting
that its failure to submit its 2nd Quarterly Report for 2004 was
due to the same reasons that it was unable to submit its 2003
Annual Report and 1st Quarterly Report for 2004. Notably, in
its Order of Revocation, the SEC considered URPHI's letters
and stated that it still failed to submit the required reports,
despite the lapse of the final extension requested.
In A.Z. Arnaiz, Realty, Inc. v. Office of the President, the

Court held that due process, as a constitutional precept, does
not always, and in all situations, require a trial-type
proceeding. Litigants may be heard through pleadings,
written explanations, position papers, memoranda or oral
arguments. The standard of due process that must be met in
administrative tribunals allows a certain degree of latitude as
long as fairness is not ignored. It is, therefore, not legally
objectionable for being violative of due process for an
administrative agency to resolve a case based solely on
position papers, affidavits or documentary evidence
submitted by the parties. Guided by the foregoing principle,
the Court rules that URPHI was afforded opportunity to be
heard when the SEC took into account in its Order of
Revocation URPHI's September 13 and 28, 2004 letters,
explaining its failure to submit the reportorial requirements, as
well as its request for final extension within which to comply.
Pertinent portions of the said Order read:
xxx. (Emphasis supplied; italics in the original; citations

omitted)
The Supreme Court also noted in the said case that the SEC
performs both quasi-judicial and regulatory functions and made the
following distinction in resolving the issue on the SEC's
observance of the requirements of procedural due process, thus:
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Meanwhile, the Court disagrees with URPHI's claim that

the Globe Telecom, Inc. ruling - that notice and hearing are
indispensable when an administrative agency exercises quasi-
judicial functions and that such requirements become even
more imperative if the statute itself demands it -is applicable to
the present case.
In Gamboa v. Finance Secretary, the Court has held that the

SEC has both regulatory and adjudicative functions, thus:
Under its regulatory responsibilities, the SEC

may pass upon applications for, or may suspend or
revoke (after due notice and hearing), certificates of
registration of corporations, partnerships and
associations (excluding cooperatives, homeowners
associations, and labor unions); compel legal and
regulatory compliances; conduct inspections; and
impose fines or other penalties for violations of the
Revised Securities Act, as well as implementing rules
and directives of the SEC, such as may be warranted.
Relative to its adjudicative authority, the SEC
has original and exclusive jurisdiction to hear and
decide controversies and cases involving -
a. Intra-corporate and partnership
relations between or among the
corporation, officers and
stockholders and partners, including
their elections or appointments;
b. State and corporate affairs in relation
to the legal existence of corporations,
partnerships and associations or to
their franchises; and
c. Investors and corporate affairs
particularly in respect of devices and
schemes, such as fraudulent
practices, employed by directors,
officers, business associates, and/or
other stockholders, partners, or
members of registered firms; xxx
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As can be gleaned from the aforequoted ruling, the

revocation of registration of securities and permit to sell them
to the public is not an exercise of the SEC's quasi-judicial
power, but of its regulatory power. A "quasi-judicial
function" is a term which applies to the action, discretion, etc.,
of public administrative officers or bodies, who are required
to investigate facts, or ascertain the existence of facts, hold
hearings, and draw conclusions from them, as a basis for their
official action and to exercise discretion of a judicial nature.
Although Section 13.1 of the SRC requires due notice and
hearing before issuing an order of revocation, the SEC does
not perform such quasi-judicial functions and exercise
discretion of a judicial nature in the exercise of such
regulatory power. It neither settles actual controversies
involving rights which are legally demandable and
enforceable, nor adjudicates private rights and obligations in
cases of adversarial nature. Rather, when the SEC exercises its
incidental power to conduct administrative hearings and
make decisions, it does so in the course of the performance of
its regulatory and law enforcement function.
Significantly, unlike in Globe Telecom, Inc. where the
Court ruled that the fine imposed by the NTC without notice
and hearing, was null and void due to the denial of petitioner's
right to due process, the revocation of URPHI's registration of
securities and permit to sell them to the public cannot be
considered a penalty but a withdrawal of a privilege, which
regulatory power the SEC validly exercised after giving it due
notice and opportunity to be heard.
While URPHI correctly relied in BLTB Co., Inc. v. Cadiao
to support its view that a motion for reconsideration is curative
of a defect in procedural due process only if a party is given
sufficient opportunity to explain his side of the controversy, the
Court rejects URPHI's claim that it did not have the opportunity
to explain the substantive controversy of its violation of the
SRC reportorial requirements. Contrary to the claim that only
the issue of procedural due process was raised in its appeal
with the SEC, URPHI also raised in its Memorandum dated
January 3, 2005 the reasons why it failed to comply with the
said requirements, and why revocation is inequitable under the
circumstances. (Emphasis supplied; italics in the original;
citations omitted)
In this case, the actions taken by the SEC on petitioners'

CA-G.R. SP. No. 154292
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alleged violation of the foreign equity restrictions prescribed by

the Constitution for mass media entities clearly fall under its
regulatory functions.
Accordingly, the Court rules that in the present case, a

substantial compliance with the requirements of due process was
observed by the SEC. First, petitioners were properly notified of
the charges against them through the Show Cause Order directing
them to submit a sworn statement/explanation within fifteen
days (15) from receipt, as to why they should not be held liable for
violation of the foreign equity restriction enshrined in the 1987
Constitution and other laws. Second, petitioners were able to
explain their side when they filed their Verified Explanation dated
26 August 2017 in response to the Show Cause Order. Third,
petitioners were given the opportunity to be heard when they
participated in the proceedings before the SEC by appearing on 28
February 2017 before the SEC Company Registration and
Monitoring Department (CRMD) in response to a Notice of
Conference called by the latter. They also filed a Verified
Compliance and Supplemental Verified Compliance in response to the
Order for the Production of Documents issued by the Special Panel.
Fourth, petitioners were given the opportunity to appeal the
adverse decision of the SEC En Banc when they filed the instant
Petition before this Court.
Although a full compliance with the procedure under the

2016 SEC Rules would have been desirable, the record shows that
a substantial compliance with the requirements of procedural due
process was accorded to the petitioners. Hence, the assailed SEC
Decision cannot be annulled on the ground that petitioners were
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denied due process.
Propriety of the Sanctions

Imposed by the SEC on
Petitioners
In determining the propriety of the sanctions imposed by

the SEC En Banc in this case, the pertinent issues which arise are
the following:
1. Is the mere incorporation of Clause 12.2.2 in the

Omidyar PDR already a violation of the constitutional
provision by itself, or must there be an exercise of the
right granted therein (negative control) to constitute a
violation of the constitutional provision?; and
2. In either or both cases, will the petitioners be

allowed to rectify the violation, or will such violation
automatically warrant the revocation of the corporate
franchise?
On this matter, petitioners contend that they “cannot be

sanctioned or held liable for violation of Section 11(1) of Article
XVI of the Constitution, as the act complained of, which is control
by OMIDYAR of RAPPLER never occurred.”106
The record shows that from the time RHC issued the
Omidyar PDR, Rappler has not amended or sought the
amendment of its Articles of Incorporation. Thus, Omidyar never
had the opportunity to exercise its rights under Clause 12.2.2 of
the Omidyar PDR.
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Moreover, before Omidyar could exercise its rights under

Clause 12.2.2 of the Omidyar PDR, it executed a Waiver dated 11
December 2017, through which it affirms that it “has never
exercised its rights under Section 12.2.2” and “agrees to waive its
rights under Section 12.2.2 of the PDR Instrument.” Thus:
This Waiver is not intended as, and shall not constitute,

an admission or acknowledgment by any Party that the PDR
Instrument or Section 12.2.2 thereof is invalid or otherwise
contrary to law or that the stockholders, directors, and/or
officers of the PDR Holders, the Issuer and/or Company have
committed any violation of the law and rules.
Furthermore, as stated by petitioners in their Reply,

Omidyar has donated all the Omidyar PDR to the Rappler staff. 107
This is a new development which was not presented to, and
considered by the Special Panel in issuing its Investigation
Report, and the SEC En Banc in rendering the assailed Decision.
Petitioners argue that the execution of the Waiver and the

recent donation of all the Omidyar PDR to the Staff of Rappler
show the intention of petitioners to comply in good faith with the
rules and regulations of the SEC.
The Court finds merit in this contention.
The SEC does not dispute that the issuance of PDRs is not
illegal per se. As noted by petitioners, other corporations like ABS-
CBN, GMA and Globe have issued PDRs in the past and the same
were allowed by the SEC. Further, the SEC also reviewed the
NBM PDR and found nothing illegal or irregular in its terms.
107 Petitioners' Reply, Id., at 966.

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In view of the donation made by Omidyar of all the

Omidyar PDR to the Rappler staff, the negative foreign control
found objectionable by the SEC appears to have been permanently
removed. This Court notes that the terms and conditions of the
donation made by Omidyar was not discussed by petitioners in
their Reply. Also, petitioners did not attach a copy of the
document containing the alleged donation in their Reply.
Thus, it is incumbent upon the SEC to evaluate the terms

and conditions of said alleged supervening donation and its
legal effect, particularly, whether the same has the effect of
mitigating, if not curing, the violation it found petitioners to
have committed. If so, this may warrant a re-examination of the
sanction of revocation of petitioners' Certificates of
Incorporation imposed by the SEC En Banc in the assailed
Decision.
The Court notes that, in cases where the articles of

incorporation or any amendment thereto is found by the SEC to
be non-compliant with the requirements of the Corporation Code,
under Section 17 of the Corporation Code, the SEC is mandated to
give incorporators a reasonable time within which to correct or
modify the objectionable portions of their articles of incorporation
or amendment thereof. Thus:
Section 17. Grounds when articles of incorporation or

amendment may be rejected or disapproved. – The Securities and
Exchange Commission may reject the articles of incorporation
or disapprove any amendment thereto if the same is not in
compliance with the requirements of this Code: Provided, That
the Commission shall give the incorporators a reasonable
time within which to correct or modify the objectionable
portions of the articles or amendment. The following are
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grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment

thereto is not substantially in accordance with the form
prescribed herein;
2. That the purpose or purposes of the corporation are

patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;
3. That the Treasurer’s Affidavit concerning the amount

of capital stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock

to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the
Constitution. (Emphasis supplied)
Moreover, the SEC, in the past, had pursued a policy that

the revocation of the certificate of registration should be the last
resort.
In a Notice posted on 4 May 2015 in the SEC website, the

SEC En Banc relaxed the policy against delinquent corporations
which failed to comply with the reportorial requirements under
Sections 26 and 141 of the Corporation Code. It should be noted
that one of the grounds for the revocation of a certificate of
registration is the failure to file the required reports under said
Sections. Under the new policy, instead of immediately issuing an
order of revocation, the SEC will issue an order of suspension
against the delinquent corporation which failed to comply with
the reportorial requirements for five consecutive years. The order
of suspension will be published in a newspaper of general
circulation and the delinquent corporation is given 30 days from
CA-G.R. SP. No. 154292
Decision
Page 71
the date of publication to comply with the reportorial

requirements. If the delinquent corporation still fails to comply
with the reportorial requirements within the prescribed period,
the SEC will enter a suspended status in the records of the
delinquent corporation. The order of suspension will remain
effective until the submission by the corporation of its latest
reports and its payment of the corresponding fines and penalties.
In Marbel Institute Technical College v. Lubaton,108 which

involved the revocation of the Certificate of Incorporation of
respondents therein, the SEC En Banc took the position that
revocation of the certificate of registration should be the last
resort. Thus:
Finally, the Commission has consistently ruled that not
every casual infraction would be a valid ground for revocation.
The drastic remedy of dissolving a corporation must be
exercised with great caution and not in doubtful cases.
Revocation will only be resorted if all the available remedies
have been exhausted. (Emphasis supplied)
Also, following the ruling of the Supreme Court in Gamboa,

the SEC issued Memorandum Circular No. 8, Series of 2013 giving
existing corporations, which are non-compliant with the
constitutional or statutory ownership requirements, a period of
one year from the effectivity of the Circular to comply with the
ownership requirement. In this connection, the SEC, as the
corporate regulator, may also find it necessary to issue pertinent
guidelines or regulations applicable to PDRs and similar
instruments to obviate future controversies in complying with the
foreign equity restrictions of the Constitution.
108 SEC Case No. 05-09-0336, 18 October 2016.

CA-G.R. SP. No. 154292
Decision
Page 72
WHEREFORE, the Petition is DENIED. However, the

Securities and Exchange Commission is hereby DIRECTED to
conduct an evaluation of the legal effect of the alleged
supervening donation made by Omidyar Network of all its
Philippine Depositary Receipts to the Staff of Rappler, Inc.
Accordingly, this case is hereby REMANDED to the Securities
and Exchange Commission for this purpose.
SO ORDERED.
RAFAEL ANTONIO M. SANTOS

Associate Justice
WE CONCUR:
APOLINARIO D. BRUSELAS, JR.

Associate Justice
GERMANO FRANCISCO D. LEGASPI

Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is

hereby certified that the conclusions in the above decision were
reached in consultation before the opinion of the Court was
written.
APOLINARIO D. BRUSELAS, JR.

Associate Justice
Chairman, Special Twelfth Division
-NGO-

CA

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Republic of the Philippines

SPECIAL TWELFTH DIVISION

RAPPLER, INC. AND CA-G.R. SP. No. 154292

Bruselas, Jr., Chairman

Before this Court is a Petition for Review1 under Rule 43 of

WHEREFORE, premises considered, the En Banc finds

and statutory Foreign Equity Restrictions in Mass Media,

The En Banc hereby imposes the following

(1) The Omidyar PDR is declared VOID pursuant

(2) REVOCATION OF CERTIFICATE OF

Let a copy of this DECISION be furnished the

SO ORDERED.3 (Emphasis in the original)

Petitioner Rappler, Inc. (Rappler) is a domestic stock

xxx to design, develop, establish, market, sell, maintain,

Petitioner Rappler Holdings Corporation (RHC), the parent

To acquire by purchase, exchange, assignment, gift or

5 Petition, Id., at 19-20.

For brevity, Rappler and RHC will be collectively referred to

According to petitioners, Rappler is a start-up company that

On 29 May 2015, RHC issued a Philippine Depositary

11 Petition, Id., at 20.

growth markets, operates as a venture capital firm, invests in

On 20 October 2015, RHC issued a PDR Instrument

On 22 December 2016, the SEC En Banc received a Letter

On 28 February 2017, petitioners appeared in response to a

On 8 July 2017, the Special Panel was created by the SEC En

RESOLVED, to constitute the ZW Task Force as a Special

On 1 August 2017, the Special Panel issued a Show Cause

You are directed to show cause and submit your sworn

xxx (Emphasis and underscoring in the original)22

On 17 August 2017, petitioners filed a Request for Extension of

Time23 to file their sworn statement/explanation in response to

On 23 August 2017, the Special Panel issued an Order25

On 29 August 2017, petitioners filed their Verified

In their Verified Explanation, petitioners stated that they did

23 Annex “J”, Petition, Id., at 306-308

Petitioners further stated that they did not violate Section 1

On 27 September 2017, the Special Panel issued an Order for

1. A certified true copy of the Philippine Depositary Receipt

2. The registration/organization/incorporation documents of

(a) North Base Media, Ltd.

(b) NBM Rappler, L.P.

(c) Omidyar Network Fund LLC

and other reference materials perused in the conduct of due

On 12 October 2017, petitioners filed their Verified

a. Annex 1 – a copy of Certification39 dated 10 October

b. Annex 2 – a copy of the Certificate of Registration of

c. Annex 3 – a copy of the Certificate of Good Standing of

d. Annex 4 – a copy of the NBM Rappler, L.P. Register

e. Annex 5 – a copy of the notarized Affidavit43 dated 29

that “NBM Rappler, L.P. is not a partnership between

f. Annex 6 – a copy of the Certificate of Formation44 of

g. Annex 7 – a copy of the Certificate of Change of Agent

On 22 December 2017, petitioners filed a Verified

On 10 January 2018, the Special Panel rendered an

Here, there is a substantial evidence that respondents,

Putting together all the evidence, the scheme that

• Incorporated in 2011, Rappler, Inc. publishes news and

• Rappler, Inc. has all-Filipino shareholders, directors, and

• In 2013 and 2014, Rappler, Inc. obtained commitments

• In December 2014, Rappler, Inc. needing a way to

• Rappler Holdings Corporation also has all-Filipino

• In 2015, Rappler Holdings Corporation, a mere

• Because Omidyar was the later purchaser and the