BSP MB and petitioner Chuchi Fonacier v Valenzuela

G.R. No. 184778 October 2, 2009

VELASCO, JR., J.

Facts: On September 2007, the Supervision and Examination Dept. (SED) of BSP conducted examinations of the books of several banks, including but not limited to Rural Bank of Paranaque (RBPI). After the examinations, the SED examiners provided the banks with copies of Lists of Findings/Exceptions containing deficiencies discovered during the examinations. The banks were then required to comment and to undertake the remedial measures stated in the lists within 30 days from receipt thereof. The remedial measured include the infusion of additional capital. Though the banks claimed that they have made additional capital infusions, Fonacier, OIC of SED sent letters to the BOD’s of each bank informing them that they failed to carry out the required remedial measures. The banks requested that they be given ample time to obtain BSP approval to amend their Articles of Incorporation and seek for more investors. They also requested that the basis for capital infusion figures be disclosed and further noted that none of them had received the Report of Examination (ROE) which finalizes the audit findings. They then requested meetings with BSP audit teams to reconcile audit figures. Fonacier, however, in response, only reiterated the bank’s failure to comply with the directive for additional capital infusions.

RBPI, on May 12, 2008 filed a complaint for nullification of the BSP ROE with application for a TRO and writ of preliminary injunction before the RTC (presided by Valenzuela) against Fonacier, BSP, et. Al. RBPI prayed that Fonacier and the others acting in her behalf be enjoined from submitting the ROE or any similar report to the Monetary Board (MB) of if the ROE had been submitted, that the MB be enjoined from acting on the basis of said ROE, on the allegation that the failure to furnish the bank with a copy of the ROE violated its right to due process.

The other banks also subsequently filed cases similar to that of RBPI. The RTC granted RBPI’s prayer for issuance of a TRO. After the cases were consolidated, the RTC also granted the prayer of the issuance of a TRO in favor of the other banks.

On May 26, 2008, petitioners filed a MTD against all complaints on the grounds that the complaints stated no cause of action and that a condition precedent for filing the cases had not been complied with.

The RTC, however ruled that the banks were entitled to the writs of preliminary injunction prayed for by the banks. It held that it had been the practice of the SED to provide the ROE’s to the banks before submission to the MB. It also mentioned that the banks should be entitled to the copies of the ROE’s and the denial of the banks’ requests for copies of such was tantamount to denial of their right to due process.

When petitioners brought the matter to the CA via PFC (Rule 65), the CA ruled that the RTC committed no grave abuse of discretion. The CA held that the principles of fairness and transparency dictate that the banks are entitled to copes of the ROE.

On Nov 24, 2008, a TRO was issued by the SC restraining the CA, RTC and respondents from implementing and enforcing the CA Decision. Because of this TRO, the SED was able to submit their ROEs to the MB. The MB then prohibited the respondent banks from transacting business and placed them under receivership under Sec. 53 of RA 8791 and Sec 30 of RA 7653.

Issue: Whether injunction was proper due to the failure by SED to furnish banks copies of the respective ROE’s.

Ruling: NO.

It had been previously held that the requisites for preliminary injunction are: the invasion of right sought to be protected is material and substantial; the right of the complainant is clear and unmistakable; and there is an urgent and paramount necessity for the writ to prevent serious damage.

Hence, a writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be protected during the pendency of the principal action. The twin requirements of a valid injunction are the existence of a right and its actual or threatened violations. Thus, to be entitled to an injunctive writ, the right to be protected and the violation against that right must be shown.

In the present case, the above requirements are absent. The lower courts held that the submission of the ROEs to the MB before the banks would violate the right to due process of said banks. However, contrary to their assertions, the banks are not entitled to copies of the ROEs. None of the provisions of the New Central Bank Act provides that the banks are recipients of the ROE.

The banks cannot claim a violation of their right to due process if they are not provided with ROE copies since the ROEs are based on the lists of findings/exceptions containing the deficiencies found be the SED examiners which said lists have been furnished to the banks. Said ROEs are, in that regard, a superfluity.

Furthermore, the issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the powers of the MB. Secs. 29 and 30 of RA 7653 refer to “the appointment of a conservator or a receiver for a bank, which is a power of the MB for which they need the ROEs done by the supervising or examining department.” The writs of preliminary injunction issued by the trial court hinder the MB from performing its function under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 "may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction." The writs of preliminary injunction order are precisely what cannot be done under the law by preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653.

Lastly, the banks have not shown any necessity for the writ of preliminary injunction to prevent serious damage. The serious damage contemplated by the RTC was the possibility of the imposition of sanctions upon the banks, even the sanction of closure. However, under the law, the sanction of closure could be imposed upon a bank by the BSP even without notice and hearing. As previously held, the apparent lack of procedural due process would not result in the invalidity of action by the MB.

The close now, hear later” scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank’s assets. It is a valid exercise of police power to protect depositors, creditors, stockholders and the general public. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits. Judicial review enters the picture only after the MB has taken action; it cannot prevent such action by the MB. The threat of the imposition of sanctions, even that of closure, does not violate their right to due process, and cannot be the basis for a writ of preliminary injunction. The writ of preliminary injunction cannot, thus, prevent the MB from taking action, by preventing the submission of the ROEs and worse, by preventing the MB from acting on such ROEs.

“Unless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government.”

All these considered, the banks are clearly not entitled to the injunctive reliefs sought. The writs of preliminary injunction must hence be nullified.