SC stops Iligan City gov’t from taking possession of National Steel’s plant assets

Supreme Court of the Philippines

By Eileen Mencias

The Supreme Court’s third division ruled in favor of the liquidator of National Steel Corp. and ordered the City Government of Iligan to “permanently desist” from taking possession and control over the steel firm’s plant assets.

National Steel Corp., one the largest steel mill in Asia, had gone bankrupt and was placed under liquidation in October 2000. The company had incurred real property tax arrears from its plant and the land it occupied.

On September 9, 2004, the Ilijan City government enacted an ordinance providing tax relief to delinquent real property taxpayers. A day later, Global Steelworks International Inc. bought National Steel’s assets through an asset purchase agreement. National Steel committed to pay the tax arrears over the plant assets up to October 14, 2004 while Global Steel agreed to assume the taxes starting October 15, 2004.

National Steel entered into a tax amnesty agreement with the Iligan City government on October 13, 2004, committing to pay a total of P177.5 million in eight annual installments of P22.19 million beginning 2004 until 2012 except for 2005 which was a grace period.

Global Steel, however, failed to pay the current taxes on the plant in breach of its obligations and the City Government of Iligan then went after National Steel and issued notices of tax delinquency and warrants of levy.

The city government issued two official receipts acknowledging the payments made by National Steel on December 18, 2008 and two certifications acknowledging its full compliance with the schedule of payments on February 23, 2009. Despite these, the city government did not clear National Steel of its real property tax liabilities, prompting the steel firm to file a complaint for specific performance at the Makati Regional Trial Court. The Makati RTC ruled in favor of National Steel in 2011.

The City Government of Iligan appealed the Makati RTC decision and the Court of Appeals ruled on March 7, 2014 that the Makati RTC had no jurisdiction over the case. National Steel sought a reconsideration and the CA then affirmed the Makati RTC decision.

To protect the assets it acquired, Global Steel filed a petition for indirect contempt and declaration of nullity on the notice of tax delinquency and the warrants of levy with the Regional Trial Court of Iligan. Even with the finality of the Makati RTC decision, the City Government of Iligan included Global Steel among the delinquent real property taxpayers and went on to levy upon the plant assets.

The Makati RTC issued a writ of execution to implement its final and executory decision on October 18, 2016 but the City Government of Iligan still proceeded with the auction of Global Steel’s assets on October 19, 2016. Without any bidders, the City Government of Iligan then took over the plant assets.

National Steel then went back to the Makati RTC for relief and Global Steel amended its petition in the Iligan RTC to have the auction nullified and recover its property. The city government of Iligan claimed Global Steel engaged in forum shopping and agreed with the Iligan City government.

In the decision promulgated July 20, 2022 and released October 21, 2022, Associate Justice Henri Jean Paul Inting said there was no forum shopping because National Steel and Global Steel are two different entities and they do not represent the same interest.

“Considering all the circumstances, the court holds the levy and the tax delinquency sale of the subject plant assets as invalid having been conducted in defiance of the RTC Makati decision which ordered the respondents to clear petitioner of its real property tax liabilities,” the SC said.

“In as much as the right of the City Government of Iligan to possess and own the plant assets proceeded from a void tax delinquency sale, the City Government of Iligan is commanded to desist from further possessing and exercising acts of ownership over the plant assets,” it added.

However, the Supreme Court refrained from awarding the possession of the plant assets to National Steel in view of the existing asset purchase agreement.

“The question of who between Global Steel and petitioner (National Steel) is entitled to the possession and ownership of the plant assets should be determined in a different forum after ascertainment of the parties’ compliance with the asset purchase agreement,” the decision said.

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