One highly technical question that is often asked is the extent of our jurisdiction at the Securities and Exchange Commission (SEC) when it comes to intra-corporate disputes. This was, in fact, one matter raised against the SEC in a recent controversy.
Once upon a time, the issue of the SEC's jurisdiction was fairly simple. Under Section 5 of Presidential Decree (PD) No. 902-A, the SEC had original and exclusive jurisdiction over cases involving:
a) Devices or schemes employed by, or any acts of, the board of directors, business associates, its officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder, partners, members of associations or organizations registered with the commission;
b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; and
c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.
However, this changed with Section 5.2 of the Securities Regulation Code (SRC) wherein all cases enumerated under Section 5 of PD 902-A were transferred to courts of general jurisdiction, or the appropriate Regional Trial Court (RTC), as may be designated by the Supreme Court. The reason for that transfer was to allow the SEC focus on its capital market regulatory functions. Whether or not that was a correct policy decision on the part of the legislative is not a topic for this article though. It is what it is now.
But this unique situation has caused some confusion even after many years after the passage of that law transferring such jurisdiction from the SEC to the courts. Did this mean that the SEC no longer has any teeth? Did this mean the SEC can be divested of authority once a case involved an intra-corporate controversy?
The Supreme Court has already dealt with this issue in the fairly recent case of Roman Jr. vs Securities and Exchange Commission (G.R. 196329, June 1, 2016).
In the Roman case, the Supreme Court explained that the SEC still has sufficient powers to assume jurisdiction over matters concerning its supervisory, administrative and regulatory functions, to wit:
"Under the SRC, jurisdiction on matters stated under Section 5 of P.D. No. 902-A, which was originally vested in the SEC, has already been transferred to the RTC acting as a special commercial court. Despite the said transfer, however, the SEC still retains sufficient powers to justify its assumption of jurisdiction over matters concerning its supervisory, administrative and regulatory functions. In SEC v. Subic Bay Golf and Country Club Inc.
(SBGCCI) and Universal International Group Development Corp. (UIGDC), for instance, the court affirmed the SEC's assumption of jurisdiction over a complaint, which alleged that SBGCCI and UIGDC committed misrepresentations in the sale of their shares. The court held in the said case that nothing prevented the SEC from assuming jurisdiction to determine if SBGCCI and UIGDC committed administrative violations and were liable under the SRC despite the complaint having raised intra-corporate issues. It also ruled that the SEC may investigate activities of corporations to ensure compliance with the law."
But more importantly, the Supreme Court said in the Roman case that:
"Beyond doubt, therefore, is the authority of the SEC to hear cases regardless of whether an action involves issues cognizable by the RTC, provided that the SEC could only act upon those which are merely administrative and regulatory in character. In other words, the SEC was never dispossessed of the power to assume jurisdiction over complaints, even if these are riddled with intra-corporate allegations, if their invocation of authority is confined only to the extent of ensuring compliance with the law and the rules, as well as to impose fines and penalties for violation thereof; and to investigate even motu proprio whether corporations comply with the Corporation Code, the SRC and the implementing rules and regulations (underscoring ours)."
Thus, lawyers cannot simply invoke "intra-corporate" controversy to divest the SEC of jurisdiction in pending cases before the commission. As explained by no less than the Supreme Court, the SEC still has jurisdiction over matters concerning its expansive supervisory, administrative and regulatory functions.
Once upon a time, the issue of the SEC's jurisdiction was fairly simple. Under Section 5 of Presidential Decree (PD) No. 902-A, the SEC had original and exclusive jurisdiction over cases involving:
a) Devices or schemes employed by, or any acts of, the board of directors, business associates, its officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder, partners, members of associations or organizations registered with the commission;
b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; and
c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.
However, this changed with Section 5.2 of the Securities Regulation Code (SRC) wherein all cases enumerated under Section 5 of PD 902-A were transferred to courts of general jurisdiction, or the appropriate Regional Trial Court (RTC), as may be designated by the Supreme Court. The reason for that transfer was to allow the SEC focus on its capital market regulatory functions. Whether or not that was a correct policy decision on the part of the legislative is not a topic for this article though. It is what it is now.
But this unique situation has caused some confusion even after many years after the passage of that law transferring such jurisdiction from the SEC to the courts. Did this mean that the SEC no longer has any teeth? Did this mean the SEC can be divested of authority once a case involved an intra-corporate controversy?
The Supreme Court has already dealt with this issue in the fairly recent case of Roman Jr. vs Securities and Exchange Commission (G.R. 196329, June 1, 2016).
In the Roman case, the Supreme Court explained that the SEC still has sufficient powers to assume jurisdiction over matters concerning its supervisory, administrative and regulatory functions, to wit:
"Under the SRC, jurisdiction on matters stated under Section 5 of P.D. No. 902-A, which was originally vested in the SEC, has already been transferred to the RTC acting as a special commercial court. Despite the said transfer, however, the SEC still retains sufficient powers to justify its assumption of jurisdiction over matters concerning its supervisory, administrative and regulatory functions. In SEC v. Subic Bay Golf and Country Club Inc.
(SBGCCI) and Universal International Group Development Corp. (UIGDC), for instance, the court affirmed the SEC's assumption of jurisdiction over a complaint, which alleged that SBGCCI and UIGDC committed misrepresentations in the sale of their shares. The court held in the said case that nothing prevented the SEC from assuming jurisdiction to determine if SBGCCI and UIGDC committed administrative violations and were liable under the SRC despite the complaint having raised intra-corporate issues. It also ruled that the SEC may investigate activities of corporations to ensure compliance with the law."
But more importantly, the Supreme Court said in the Roman case that:
"Beyond doubt, therefore, is the authority of the SEC to hear cases regardless of whether an action involves issues cognizable by the RTC, provided that the SEC could only act upon those which are merely administrative and regulatory in character. In other words, the SEC was never dispossessed of the power to assume jurisdiction over complaints, even if these are riddled with intra-corporate allegations, if their invocation of authority is confined only to the extent of ensuring compliance with the law and the rules, as well as to impose fines and penalties for violation thereof; and to investigate even motu proprio whether corporations comply with the Corporation Code, the SRC and the implementing rules and regulations (underscoring ours)."
Thus, lawyers cannot simply invoke "intra-corporate" controversy to divest the SEC of jurisdiction in pending cases before the commission. As explained by no less than the Supreme Court, the SEC still has jurisdiction over matters concerning its expansive supervisory, administrative and regulatory functions.
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