In the Matter of DNK Lending & Trading Corporation

October 17, 2013 SEC ADMINISTRATIVE CASE NO. 09-11-135 IN THE MATTER OF DNK LENDING & TRADING CORPORATION, ENFORCEMENT AND PROSECUTION DEPARTMENT , petitioner . FOR : Revocation of Corporate Registration DECISION This resolves the Petition, filed by the Enforcement and Prosecution Department ("EPD") on 21 September 2011, praying for the revocation of the Certificate of Registration of DNK LENDING & TRADING CORPORATION ("DNK Lending") for its continued defiance of the lawful order of the Commission pursuant to Sec. 6 par. (l) (3) and (b) of Presidential Decree No. 902-A (PD 902-A) and for the payment of the fine assessed in EPD's Order dated 21 June 2011. TCDcSE Summonses were issued to DNK Lending's incorporators, but the same were returned unserved. Alias summons was duly served upon DNK Lending, through its Treasurer, Daljit Singh, on 19 July 2013. No Answer was filed within the prescribed period of fifteen (15) days from notice. Thus, DNK Lending is considered as "in default" pursuant to Section 3-12 of the 2006 SEC Rules of Procedure, which reads: "Sec. 3-12. Effect of Failure to Answer. If the respondent fails to answer the complaint within the abovestated period, he shall be considered as in default. The Hearing Panel or Officer shall, motu proprio , proceed to render judgment granting the complainant such relief as the complaint may warrant, unless the Hearing Panel or Officer determines that the complainant should be required to submit ex parte additional evidence." Hence, we resolve the petition based on its allegations supported by substantial evidence. DNK Lending is a corporation duly registered with the SEC on 29 April 1991 under SEC Registration No. 189957. 1 In a Memorandum dated 24 November 2010, 2 the Corporation Finance Department (CFD) of the Commission endorsed to EPD for investigation a list of companies that were engaging in lending business activities without securing the required Certificate of Authority (CA) from the Commission in violation of Republic Act No. 9474 (R.A. 9474). The list was obtained from various local government units and contains names of companies which have secured business permits to engage in lending activities in their respective jurisdiction. DNK Lending is one of the companies included in said list. In a letter dated 20 January 2011, 3 EPD directed DNK Lending to secure the requisite CA within thirty (30) days from receipt of said letter, with a warning that its failure to secure said CA would entail the imposition of appropriate sanctions under Presidential Decree No. 902-A, as amended, which may include but not limited to, the suspension or revocation of its certificate of registration for failure to obey a lawful order of the Commission, and other imposable penalties and possible criminal charges against the officers and directors of the corporation for non-compliance with Section 4, Rule 3 of R.A. 9474. DNK Lending received said letter on 14 February 2011. 4 EIcSTD On 11 March 2011, the investigating team conducted an ocular inspection and surveillance of the principal office address of DNK Lending located at 122-B K-1st Street, Kamuning, Quezon City. The investigation report 5 reveals that the office of DNK Lending is a residential apartment occupied by a family of Indian nationals and that the investigating team talked to Mr. Daljit Singh, who said that DNK was no longer operational for a long time. On 21 June 2011, the EPD issued an Order 6 directing DNK Lending to secure a CA and to pay a fine of P22,300.00 pursuant to SEC Memorandum Circular No. 9, series of 2010 within thirty (30) days from receipt of said Order, with a warning that revocation proceedings may be instituted against the Certificate of Registration of DNK Lending and such other penalties may be imposed for non-compliance. DNK Lending received said Order on 24 June 2011. 7 Despite receipt of said Order, DNK Lending failed to secure the required CA. Thus, EPD filed the instant Petition. The ultimate issue to be resolved in this Petition is whether there is sufficient ground to revoke DNK Lending's Certificate of Registration. Section 6, paragraphs (l) (3) and (6) of PD 902-A, as amended, expressly provides that refusal to comply with any lawful order of the Commission restraining commission of acts and failure to file reportorial requirements are some of the grounds for revocation of the certificate of registration of corporations, viz. "Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: . . . (l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: . . . (3) Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would amount to a grave violation of its franchise; aEDCSI xxx xxx xxx (6) Failure to file required reports on appropriate forms as determined by the Commission within the prescribed period." In the present case, DNK Lending was incorporated on 29 April 1991 primarily to engage in the business of lending money to the public. On 22 May 2007, R.A. 9474 was passed and signed into law mandating that all companies engaged in lending activities or business shall secure a Certificate of Authority from the Commission and comply with the minimum capital requirement of one million pesos (Php1,000,000.00), to wit: "Section 4. Form of Organization. A lending company shall be established only as a corporation, Provided that existing lending investors organized as sole proprietorships or partnerships shall be disallowed from engaging in the business of granting loans to the public one year after the date of effectivity of this Act. No lending company shall conduct business unless granted an authority to operate by the SEC. Section 5. Capital. The minimum paid in capital of any lending company which may be established after the effectivity of this Act shall be One million pesos (P1,000,000.00): Provided, however, That lending companies established and in operation prior thereto shall comply with the minimum capitalization required under the provisions of this Section within such time as may be prescribed by the SEC which time shall, in no case, be less than three years from the date of effectivity of this Act and: Provided, further, That the SEC may prescribe a higher minimum capitalization if warranted by circumstances." Notwithstanding the passage of R.A. 9474, DNK Lending continued to operate without first securing the necessary CA from the Commission in violation of Section 4 of R.A. 9474. A perusal of DNK Lending's Audited Financial Statements 8 (AFS) shows that it has Assets in the form of Loans Receivable in the following amounts from 2006 to 2009, which contradicts Mr. Daljit Singh's statement that DNK Lending was no longer operational for a long time: TcDHSI Year Amount of Loans Receivable 2006 P382,638.93 2007 P318,783.28 2008 P256,071.07 2009 P288,301.56 Moreover, DNK Lending secured a business permit to engage in lending activities in 2009. Based on its 2009 AFS, it appears that it has to continue its operations so that it can at least collect said receivables. Notwithstanding, DNK Lending did not take heed of EPD's letter dated 20 January 2011 and Order dated 21 June 2011 to secure a CA and to pay a fine of P22,300.00, as evidenced by the Certification issued by the CFD. 9 Lastly, DNK Lending continuously failed to submit its General Information Sheets since 1996 and its Financial Statements since 2010, among other reports required by the Commission pursuant to Sec. 141 of the Corporation Code. Given the foregoing, there is sufficient ground to revoke the Certificate of Registration issued to DNK Lending pursuant to Sec. 6 pars. (l) (3) and (6) of PD 902-A. WHEREFORE, the instant Petition is GRANTED. Accordingly, the Certificate of Registration of DNK LENDING & TRADING CORPORATION is hereby REVOKED. Let a copy of this Decision be furnished to the Company Registration and Monitoring Department, the Corporation Finance Department, the Enforcement Prosecution Department and the Economic Research & Information Department for their information and appropriate action. SO ORDERED. October 17, 2013, Mandaluyong City, Philippines. On official leave TERESITA J. HERBOSA Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner (SGD.) ANTONIETA F. IBE Commissioner Footnotes 1. Records, page 132. 2. Id. , pp. 101, 105-106. 3. Id. , pp. 98-100. 4. Id. , p. 98. 5. Id. , pp. 96-97. 6. Id. , pp. 2-3. 7. Id. , p. 2. 8. Records, pp. 18, 35, 44 and 51. 9. Records, p. 1.