In July 2001, Export and Industry Bank (EIB) entered into a three-way merger with Urban Bank, Inc. (UBI) and Urbancorp Investments, Inc. (UII) in an attempt to rehabilitate UBI which was under receivership.
In September 2001, following the said merger, EIB encountered financial difficulties which prompted respondent PDIC to extend financial assistance to it. Since EIB still failed to overcome its financial problems, respondent released additional financial assistance to it in May 2005, conditioned upon the infusion by EIB stockholders of additional capital whenever EIB’s adjusted Risk Based Capital Adequacy Ratio falls below 12.5%. EIB failed to meet this capital requirement which led to EIB’s stockholders to commence the process of selling the bank.
On April 2012, EIB’s president and chairman voluntarily turned over the full control of EIB to BSP, and informed the latter that the former will declare a bank holiday on April 27, 2012.
On April 26, 2012, the BSP, through the Monetary Board, issued Resolution No. 686 prohibiting EIB from doing business in the Philippines and placing it under the receivership of PDIC, in accordance with Section 30 of Republic Act No. 7653 or “The New Central Bank Act.” Accordingly, PDIC took over EIB.
PDIC then submitted its initial receivership report to the Monetary Board which contained its finding that EIB can be rehabilitated provided that a bidding for its rehabilitation would be conducted, and that the following conditions would be met: (a) there are qualified interested banks that will comply with the parameters for rehabilitation of a closed bank, capital strengthening, liquidity, sustainability and viability of operations, and strengthening of bank governance; and (b) all parties agree to the rehabilitation and the revised payment terms and conditions of outstanding liabilities.
As no bids were submitted, on April 2013, PDIC informed BSP that EIB can hardly be rehabilitated. The Monetary Board then passed Resolution No. 571 directing PDIC to proceed with the liquidation of EIB.
On April 29, 2013, petitioners, who are stockholders representing the majority stock of EIB, filed a petition for certiorari before the CA challenging Resolution No. 571.
The CA dismissed the petition and held that there is nothing in Section 30 of RA 7653 that requires the Monetary Board to make its own independent factual determination on the bank’s viability before ordering its liquidation.
Issue:
Whether or not the Court of Appeals correctly ruled that the Monetary Board did not gravely abuse its discretion in issuing Resolution No. 571 which directed the PDIC to proceed with the liquidation of EIB
Ruling:
The petition is denied.
Section 30 of RA 7653 provides for the proceedings in the receivership and liquidation of banks and quasi-banks. It is settled that the power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the State. Police power, however, is subject to judicial inquiry.
The actions of the Monetary Board shall be final and executory and 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. There is grave abuse of discretion when there is an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law or to act in contemplation of law as when the judgment rendered is not based on law and evidence but on caprice, whim and despotism.
The CA correctly held that there is nothing in Section 30 of RA 7653 that requires the BSP, through the Monetary Board, to make an independent determination of whether a bank may still be rehabilitated or not. As expressly stated in the said provision, once the receiver determines that rehabilitation is no longer feasible, the Monetary Board is simply obligated to: (a) notify in writing the bank’s board of directors of the same; and (b) direct the PDIC to proceed with liquidation.
