G.R. No. 187702 & G.R. No. 189014, October 22, 2014
SECURITIES AND EXCHANGE COMMISSION and ASTRA SECURITIES CORPORATION, Petitioners,

vs.
THE HONORABLE COURT OF APPEALS, OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA, Respondents.

FACTS

Omico Corporation scheduled its annual stockholders’ meeting for November 3, 2008. Astra Securities Corporation, an Omico stockholder, objected to the validation of proxies issued in favor of Tommy Kin Hing Tia, representing about 38% of Omico’s stock, and other proxies, alleging violations of the Securities Regulation Code (SRC) rules. Astra claimed the proxy issuers (brokers) lacked required client authorizations and that Tia’s proxies exceeded the number triggering a presumption of solicitation without compliance. Despite these objections, Omico’s Board of Inspectors validated the proxies. Astra filed a complaint with the Securities and Exchange Commission (SEC) seeking to invalidate the proxies and a cease and desist order (CDO) to enjoin the stockholders’ meeting. The SEC issued the CDO on October 30, 2008. Attempts to serve the CDO failed, and the meeting proceeded on November 3, 2008, where directors were elected. Astra filed an indirect contempt complaint with the SEC against Omico, while Omico filed a Petition for Certiorari and Prohibition with the Court of Appeals (CA) against the SEC’s CDO. The CA declared the CDO null and void, ruling the controversy was an intra-corporate dispute and an election contest over which regular courts, not the SEC, have jurisdiction.

ISSUE

Whether the Securities and Exchange Commission has jurisdiction over controversies arising from the validation of proxies for the election of the directors of a corporation.

RULING

No. The Supreme Court ruled that the SEC does not have jurisdiction. Citing the precedent set in GSIS v. CA, the Court held that controversies involving the validation of proxies related to the election of corporate directors are election contests falling under the original and exclusive jurisdiction of the regular courts, as provided by Section 5.2 of the Securities Regulation Code in relation to Section 5(c) of Presidential Decree No. 902-A. This jurisdiction was transferred from the SEC to the regional trial courts. The Court harmonized the relevant rules, stating that while the SEC retains power to regulate proxy solicitation for matters unrelated to director elections, any resulting controversy from proxy solicitation for such an election is properly seen as an election controversy within the jurisdiction of the regular courts. The Interim Rules of Procedure Governing Intra-Corporate Disputes broadly defines “election contest” to include the validation of proxies. Therefore, the SEC committed grave abuse of discretion in taking cognizance of Astra’s complaint and issuing the CDO.