The only time when demand to examine and copy the corporation’s records and minutes could be refused is when the corporation puts up as a defense to any action that the person demanding had improperly used any information secured through any prior examination of records or minutes of such corporation or of any corporation, or was not acting in good faith or for a legitimate purpose in making his demand. (Section 73 RCC)

In the case of Terelay Investment and Development Corporation vs. Cecilia Teresita Yulo, GR No. 160924 dated 05 August 2015, the court ruled that:

“Corporate officers and directors have no legal authority to close the office doors against shareholders for whom they are only agents, and withhold from them the right to inspect the books which furnishes the most effective method of gaining information which the law has provided and the right of inspection cannot be denied on mere doubt or suspicion as to the motives of the shareholder.

The burden is not upon the stockholder to show the propriety of his examination or that the refusal by the officers or directors was wrongful, except under statutory provisions.

Moreover,  the following are the purposes held to justify a demand for inspection, to wit:

1. To ascertain the financial condition of the company or the propriety of dividends;
2. To ascertain the value of shares of stock for sale or investment;
3. To determine whether there has been mismanagement;
4. In anticipation of shareholders’ meetings to obtain a mailing list of shareholders to solicit proxies or influence voting;
5. To obtain information in aid of litigation with corporation or its officers as to corporate transactions[1].

Based on the foregoing, the Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and in so doing has not required any specific amount of interest for the exercise of the right to inspect. When the law has made no distinction, the corporation ought not to recognize any distinction.

As such a corporation generally cannot arbitrarily deny a stockholder’s right to inspect the corporate books and records on the basis that his inspect would be used for a doubtful or dubious reason. This is because ownership of shares gives the stockholder the legal right to be protected from possible mismanagement of officers. It predicated on self-presentation. As such, the burden of proof is upon the corporation to show that the purpose of the shareholder is improper, by way of defense (Ballantine, Corporations, Callaghan and Company, Chicago, Rev. Ed., 1946, pp. 377-379)

Assuming arguendo that a corporation was able to prove that a shareholder had improperly used any information secured through its books or any corporation’s books, or he was not acting in good faith or for a legitimate purpose, deprivation of right to inspect and demand reproduction of corporation records does not include the the right to financial statements separately covered by Section 73 of BP 68, as amended by Section 74 of the Revised Corporation Code. Thus, the corporation still must furnish it within 10 days from the receipt of the shareholder’s request.

What are Mr. Yabut’s remedies in case a shareholder is unjustifiably deprived of corporate records?

There are various remedies available, as follows:

1. Petition for Writ of Mandamus (BPI Family Savings Bank, Inc. vs. Manikan, GR No. 148789 dated 16 January 2003)
2. Complaint for damages or criminal action against the person/s who denied the request to inspect on behalf of the corporation; if the refusal is due to a board resolution order, the directors who voted for the refusal shall be made liable (Alfredo L. Chua vs. People of the Philippines, GR No. 216146 dated 24 August 2016)
3. Report to SEC in case of denial or inaction of the corporation. SEC shall be required to conduct a summary investigation within five (5) days from receipt of complaint and, if warranted, order the inspection or reproduction of requested records (Section 74 of RCC)

Section 74 of the Corporation Code, as amended by by Section 73 of RA No. 11232, states the following penalties that may be imposed against any corporate officer or agent who violates a stockholder’s right to inspect the corporate books, to wit:

1. Damages in favor of the deprived director or stockholder;
2. Fine of P10,000 to P200,000, without prejudice to SEC’s contempt powers (Section 161 RCC); and
3. Contempt and fine in an amount not exceeding P30,000 should he unjustifiably fail or refuse to comply with any lawful order, decision, or subpoena issued by SEC. If his refusal amounts to clear and open defiance of SEC’s order, decision or subpoena, SEC may impose a daily fine of P1,000 until the order, decision, or subpoena is complied with (Section 157 RCC)

In one case, the court ruled that a criminal offense is committed if a stockholder is deprived of the exercise of right of inspect, regardless of intent of the responsibility directors or corporate officers. This was on the premise that since the Corporation Code provides for penalties relative to the commission of offenses, proof of malice or deliberate intent (mens rea) is not essential as these are offenses punishable by special laws, which are mala prohibita.

On 11 September 2020, SEC issued Memorandum Circular No. 25 Series of 2020 or the Conduction Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records where it lists the outright refusal and/or failure to to take, within a reasonable amount of time, the necessary steps to allow a director or stockholder to peruse or reproduce any of the corporate records as violations of the right to inspect and/or reproduce corporate records.