GR 135808; (October, 2008) (Digest)
G.R. No. 135808 ; October 6, 2008
SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN, JR., respondents.
FACTS
On August 6, 1994, the Board of Directors of Interport Resources Corporation (IRC) approved a Memorandum of Agreement with Ganda Holdings Berhad (GHB). Under the agreement, IRC acquired 100% of Ganda Energy Holdings, Inc. (GEHI) and would issue to GHB 55% of IRC’s expanded capital stock. IRC would also acquire 67% of Philippine Racing Club, Inc. (PRCI), with GHB arranging the loan for this acquisition. IRC alleged it sent a press release about the agreement to the SEC on August 8, 1994, but the SEC’s fax machine failed to receive it; the release was sent again on August 9, 1994.
The SEC received reports that IRC failed to make timely public disclosures of its negotiations with GHB and that some of its directors traded IRC shares using this material insider information. On August 16, 1994, the SEC Chairman directed IRC to submit a copy of the Memorandum of Agreement and required its principal officers to appear at a hearing to explain the failure to immediately disclose the information as required by the Rules on Disclosure of Material Facts. IRC complied by sending the agreement and its directors appeared before the SEC on August 22, 1994.
On September 19, 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of Material Facts and that some officers and directors violated Section 30 (Insider’s duty to disclose when trading) in relation to Section 36 (Directors, Officers and Principal Stockholders) of the Revised Securities Act. Respondents filed an Omnibus Motion (later amended) alleging the SEC had no authority to investigate, as jurisdiction was conferred upon the Prosecution and Enforcement Department (PED) of the SEC under Presidential Decree No. 902-A, and that their right to due process was violated. They also filed a Motion for Continuance of Proceedings.
On January 25, 1995, the SEC issued an Omnibus Order: (1) creating a special investigating panel to hear the case; (2) recalling the show cause orders; and (3) denying the Motion for Continuance. Respondents’ motion for partial reconsideration was denied in an Omnibus Order dated March 30, 1995. Respondents then filed a petition before the Court of Appeals (C.A.-G.R. SP No. 37036). The Court of Appeals granted a writ of preliminary injunction enjoining the SEC from proceeding. During the appellate proceedings, the SEC filed a Motion for Leave to Quash SEC Omnibus Orders so the case could be investigated by the PED.
On August 20, 1998, the Court of Appeals promulgated a Decision granting the petition. It ruled there were no implementing rules and regulations regarding the provisions of the Revised Securities Act which respondents allegedly violated, and found no statutory authority for the SEC to initiate and file any suit for civil liability under Sections 8, 30 and 36 of the Revised Securities Act. It further ruled that the Rules of Practice and Procedure Before the PED did not comply with the Administrative Code of 1987. The Court of Appeals declared all proceedings against respondents, including the Omnibus Orders of January 25, 1995 and March 30, 1995, null and void, and made the preliminary injunction permanent, prohibiting the SEC from taking cognizance or initiating any action against respondents with respect to the cited provisions. The SEC’s motion for reconsideration was denied.
ISSUE
1. Whether the Court of Appeals erred in denying petitioner’s Motion for Leave to Quash the assailed SEC Omnibus Orders.
2. Whether the Court of Appeals erred in ruling that there is no statutory authority for the SEC to initiate and file any suit against respondents with respect to Section 30 (Insider’s duty to disclose when trading) and Section 36 (Directors, Officers and Principal Stockholders) of the Revised Securities Act.
3. Whether the Court of Appeals erred in ruling that the Rules of Practice and Procedure Before the PED are invalid for failing to comply with the Administrative Code of 1987.
RULING
The Supreme Court granted the petition. The Court held that the SEC has the statutory authority to investigate violations of the Revised Securities Act, including Sections 30 and 36, and to initiate the appropriate civil, criminal, or administrative actions. The power to investigate is inherent in the SEC’s regulatory functions. The Court found that the Rules on Disclosure of Material Facts, issued by the SEC on January 29, 1973, serve as the implementing rules for the disclosure requirements under the Revised Securities Act. Furthermore, the Court ruled that the Rules of Practice and Procedure Before the PED are valid and comply with the requirements of the Administrative Code of 1987, as they provide parties with the right to be heard and to present evidence. The Court of Appeals’ decision was reversed, and the case was remanded to the SEC for further proceedings.