In the Matter of Tian He Shui Philippines, Inc.

[SEC-SICD * CASE NO. 99-0004. December 20, 1999.] IN THE MATTER OF TIAN HE SHUI PHILIPPINES, INC. For: Revocation of Corporate Franchise D E C I S I O N Before this Office is a petition filed by the Prosecution and Enforcement Department (PED) of the Commission praying for the revocation of the corporate franchise of TIAN HE SHUI PHILIPPINES, .INC. (Tian He Shui, for brevity),a stock corporation duly registered in accordance with Philippine law, with SEC Registration Certificate No. D-1998-00133 dated February 3, 1998. The petition, among others, alleges that Tian He Shui, with business address at the Royal Mandaya Hotel, J. Palma Gil Street, Davao City, violated the laws enforced and administered by the Commission, specifically, Section 6 (1) par. 2 of P.D. No. 902-A * as amended, Section 45 (Ultra Vires Act) of B.P. Blg. 68 and R.A. No. 1180 as amended by P.D. No. 714, otherwise known as the Retail Trade Nationalization Law. Summons and alias summons were issued to the respondents namely: Jeffrey Co, Jason Co and Trendily Co.,all with the same address at the Royal Mandaya Hotel, J. Palma Street, Davao City. However, the respondents' whereabouts are unknown. Acting on petitioner's motion, the Commission issued service of summons by way of publication. The summons, as well as the Commission's Order and the copy of the petition were published in People's Journal, Bagong Bagong Taliba, a newspaper of general circulation in the Philippines on 14 October 1999. Despite the lapse of the 40-day period, set forth in the summons, within which to file their answer, the respondents failed to file any responsive pleading. prcd During the hearing of the case on 24 November 1999, and upon motion of the petitioner and pursuant to Section 10 Rule III of the New Rules of Procedure of SEC, the respondents were declared in default for failure to file an answer to the petition. Likewise upon motion, the petitioner was allowed to present its case ex-parte. Exhibits for the petitioners were properly marked during the hearing and the petitioner made its formal offer of evidence on 3 December 1999. Records of the case reveal that the primary purpose for which the subject corporation is organized is: "To operate and carry on the business of hotels, inns, pension house and in connection with the operation of the said business to establish and maintain coffee shops, restaurants, refreshment parlors, cocktail lounges, serve and cater: goods, drinks,.refreshments and other foods or commodities commonly served in such establishments, ..." with a proviso that the restaurant business shall cater to hotel guests, clients and its visitors. Tian He Shui, at the time of its incorporation on February 3, 1998, is a 60% Filipino owned corporation. After its incorporation, the three Filipino incorporators on record sold their shares of stock in favor of one Jason Co, a Chinese national and son of a certain Jeffrey Co, while the two Chinese incorporators on record sold their shares of stock to Jeffrey Co, completing the take-over of the subject corporation by the father and son team, copy of the Deed of Assignment marked as Exhibit "N" is presently attached on record. On April 16, 1998, Tian He Shui, represented by Jeffrey Co, entered into a contract of lease with Mandaya Hotel Corporation (MHC for brevity),a stock corporation duly organized under the Philippine laws with business office at the Royal Mandaya Hotel, Palma Gil corner Reyes Street, Davao City. MHC owns and operates the Royal Mandaya Hotel. The lease agreement, marked on records as Exhibit "L",stipulates that Tian He Shui shall lease for 15 years, solely and exclusively: a) The entire area in the Ground Floor designated as: 1) The lounge, and Lobby Coffee Shop; 2) The Grand Ballroom and Ballroom Storage; 3) The kitchen, and utensils (and those which are permanently attached to the Kitchen) 4) The adjacent Cold Storage, and Dry Goods; 5) The Butchery, General Storage, Chiller, Cold Storage, and Gas Tank; and 6) The rooms under the staircase to the right of the front desk, except the room for the PABX, which shall be shared by the Hotel and F & B Sales and Marketing Staff. b). The entire area in the Mezzanine Floor designated as: 1) The Mezzanine Level above the front desk, and Storage Room at the center; 2) The Cafeteria, and Kitchen; and 3) The Choco Room, Butter Carver, and adjacent Open Deck and Storage Room. c). The entire area in the Second Floor designated as: 1) The Coffee Shop/restaurants, and all the areas to its left for a Chinese Restaurant; 2) The Kitchen, and Room Service; 3) The Storage Rooms; 4) The Function Rooms; and 5) Equipment, Monitor, Pantry, and room with Garbage and Linen Chute. d) The entire area in the Third Floor designated as: 1) The Pool Bar; and 2) A nearby space for a Bar-B-Q restaurant. e) The entire Ninth Floor area, except the comfort rooms/toilets. to manage and operate on its own and to supply and serve any and all of the foods, beverages and other services related to restaurant business. LLpr The pivotal issue to be resolved in the instant case is whether or not Tian He Shui violated Republic Act No. 1180, entitled "An Act to Regulate Retail Business," as amended by Presidential Decree No. 714, and in so doing, committed serious misrepresentation as to what the corporation can do or is doing to the prejudice of or damage to the general public, which may warrant the revocation of its corporate franchise. Tian He Shui makes it appear to MHC and the public that under its franchise, it is fully authorized to operate and manage a restaurant. Clearly, this is serious misrepresentation as to what corporation can do considering that under Republic Act No. 1180, otherwise known as the Retail Trade Nationalization Law, ownership of retail trade business is allowed only to Filipino citizens, Section 1 of said law states that: "No person who is not a citizen of the Philippines, and no association, partnership or corporation the capital of which is not wholly owned by citizens of the Philippines shall engage directly or indirectly in the retail trade business ..." Presidential Decree No. 714 was later enacted to define the precise scope of the term "retail business" under R.A. No. 1180. Paragraph (d) of Section 1 * thereof amended Section 4 of R.A. No. 1180 (activities excluded from the scope of the term retail business) and the said amendment excludes from he coverage of "retail business," a hotel owner or keeper operating a restaurant irrespective of the amount of capital provided that the restaurant is necessarily included in, or incidental to the hotel business . Respondent Tian He Shui is not the owner of the hotel on which its restaurant business is located and carried on. Mandaya Hotel Corporation is the hotel owner or keeper of the Royal Mandaya Hotel. Tian He Shui is merely leasing certain areas of the hotel where it is operating and managing the restaurants of the hotel. Moreover, the prohibition on foreign individuals or corporations with foreign equity to engage in the retail business (i.e. restaurant business) is restated and included under list A of the Regular Foreign Investment Negative List. Finally, Section 6 (1) par. 2 of P.D. No. 902 * As amended by P.D. No. 1758, provides as follows, to wit: "SECTION 6. In Order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx 1) * To suspend or revoke, after proper notice or hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the ground provided by law, including the following: xxx xxx xxx 2. Serious misrepresentations as to what the corporation can do or is doing to the great prejudice of or damage to the general public; xxx xxx xxx WHEREFORE, upon the premises, the Certificate of Incorporation under SEC Registration No. D-1998-00133, issued to TIAN HE SHUI PHILIPPINES, INC., is hereby REVOKED from the date hereof and its Corporate Officers/Board of Directors/ Stockholders are by these presents ordered to desist from using the name TIAN HE SHUI PHILIPPINES, INC. in their business dealings under pain of imposition of other sanctions provided in Section 6 of P.D. No. 902-A, as amended. No pronouncement as to costs. SO ORDERED. (SGD.) NATHANIEL A. LOBIGAS Hearing Officer * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .