G.R. No.

135808 October 6, 2008 immediately disclose the information as required by the Rules on Disclosure of
SECURITIES AND EXCHANGE COMMISSION, petitioner, Material Facts.6
vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, In compliance with the SEC Chairman's directive, the IRC sent a letter dated 16
PELAGIO RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and August 1994 to the SEC, attaching thereto copies of the Memorandum of
SANTIAGO TANCHAN, JR., respondents. Agreement. Its directors, Manuel Recto, Rene Villarica and Pelagio Ricalde, also
DECISION appeared before the SEC on 22 August 1994 to explain IRC's alleged failure to
CHICO-NAZARIO, J.: immediately disclose material information as required under the Rules on Disclosure
of Material Facts.7
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the Decision,1 dated 20 August 1998, rendered by the Court of Appeals in On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated
C.A.-G.R. SP No. 37036, enjoining petitioner Securities and Exchange Commission the Rules on Disclosure of Material Facts, in connection with the Old Securities Act
(SEC) from taking cognizance of or initiating any action against the respondent of 1936, when it failed to make timely disclosure of its negotiations with GHB. In
corporation Interport Resources Corporation (IRC) and members of its board of addition, the SEC pronounced that some of the officers and directors of IRC entered
directors, respondents Manuel S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio into transactions involving IRC shares in violation of Section 30, in relation to
Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan, Jr., with respect to Section 36, of the Revised Securities Act.8
Sections 8, 30 and 36 of the Revised Securities Act. In the same Decision of the
appellate court, all the proceedings taken against the respondents, including the Respondents filed an Omnibus Motion, dated 21 September 1994, which was
assailed SEC Omnibus Orders of 25 January 1995 and 30 March 1995, were superseded by an Amended Omnibus Motion, filed on 18 October 1994, alleging that
declared void. the SEC had no authority to investigate the subject matter, since under Section 8 of
Presidential Decree No. 902-A,9 as amended by Presidential Decree No. 1758,
The antecedent facts of the present case are as follows. jurisdiction was conferred upon the Prosecution and Enforcement Department (PED)
of the SEC. Respondents also claimed that the SEC violated their right to due
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of
process when it ordered that the respondents appear before the SEC and "show
Agreement with Ganda Holdings Berhad (GHB). Under the Memorandum of
cause why no administrative, civil or criminal sanctions should be imposed on
Agreement, IRC acquired 100% or the entire capital stock of Ganda Energy
them," and, thus, shifted the burden of proof to the respondents. Lastly, they
Holdings, Inc. (GEHI),2 which would own and operate a 102 megawatt (MW) gas
sought to have their cases tried jointly given the identical factual situations
turbine power-generating barge. The agreement also stipulates that GEHI would
surrounding the alleged violation committed by the respondents.10
assume a five-year power purchase contract with National Power Corporation. At
that time, GEHI's power-generating barge was 97% complete and would go on-line Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994,
by mid-September of 1994. In exchange, IRC will issue to GHB 55% of the wherein they moved for discontinuance of the investigations and the proceedings
expanded capital stock of IRC amounting to 40.88 billion shares which had a total before the SEC until the undue publicity had abated and the investigating officials
par value of P488.44 million.3 had become reasonably free from prejudice and public pressure.11

On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing No formal hearings were conducted in connection with the aforementioned motions,
Club, Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in Makati. but on 25 January 1995, the SEC issued an Omnibus Order which thus disposed of
Under the Agreement, GHB, a member of the Westmont Group of Companies in the same in this wise:12
Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition
by IRC of PRCI.4 WHEREFORE, premised on the foregoing considerations, the Commission resolves
and hereby rules:
IRC alleged that on 8 August 1994, a press release announcing the approval of the
agreement was sent through facsimile transmission to the Philippine Stock 1. To create a special investigating panel to hear and decide the instant case in
Exchange and the SEC, but that the facsimile machine of the SEC could not receive accordance with the Rules of Practice and Procedure Before the Prosecution and
it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 Enforcement Department (PED), Securities and Exchange Commission, to be
August 1994.5 composed of Attys. James K. Abugan, Medardo Devera (Prosecution and
Enforcement Department), and Jose Aquino (Brokers and Exchanges Department),
The SEC averred that it received reports that IRC failed to make timely public which is hereby directed to expeditiously resolve the case by conducting continuous
disclosures of its negotiations with GHB and that some of its directors, respondents hearings, if possible.
herein, heavily traded IRC shares utilizing this material insider information. On 16
August 1994, the SEC Chairman issued a directive requiring IRC to submit to the 2. To recall the show cause orders dated September 19, 1994 requiring the
SEC a copy of its aforesaid Memorandum of Agreement with GHB. The SEC respondents to appear and show cause why no administrative, civil or criminal
Chairman further directed all principal officers of IRC to appear at a hearing before sanctions should be imposed on them.
the Brokers and Exchanges Department (BED) of the SEC to explain IRC's failure to
3. To deny the Motion for Continuance for lack of merit. trading) and 36 (Directors, Officers and Principal Stockholders) in relation to
Sections 46 (Administrative sanctions) 56 (Penalties) 44 (Liabilities of Controlling
Respondents filed an Omnibus Motion for Partial Reconsideration,13 questioning the persons) and 45 (Investigations, injunctions and prosecution of offenses) of the
creation of the special investigating panel to hear the case and the denial of the Revised Securities Act and Section 144 (Violations of the Code) of the Corporation
Motion for Continuance. The SEC denied reconsideration in its Omnibus Order dated Code. (Emphasis provided.)
30 March 1995.14
The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a
The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. Resolution23 issued on 30 September 1998.
SP No. 37036, questioning the Omnibus Orders dated 25 January 1995 and 30
March 1995.15 During the proceedings before the Court of Appeals, respondents Hence, the present petition, which relies on the following grounds24:
filed a Supplemental Motion16 dated 16 May 1995, wherein they prayed for the
issuance of a writ of preliminary injunction enjoining the SEC and its agents from I THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONER'S MOTION FOR
investigating and proceeding with the hearing of the case against respondents LEAVE TO QUASH THE ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25 AND
herein. On 5 May 1995, the Court of Appeals granted their motion and issued a writ MARCH 30, 1995.
of preliminary injunction, which effectively enjoined the SEC from filing any
criminal, civil or administrative case against the respondents herein.17

On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus
Orders so that the case may be investigated by the PED in accordance with the SEC II THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO STATUTORY
Rules and Presidential Decree No. 902-A, and not by the special body whose AUTHORITY WHATSOEVER FOR PETITIONER SEC TO INITIATE AND FILE ANY SUIT
creation the SEC had earlier ordered.18 BE THEY CIVIL, CRIMINAL OR ADMINISTRATIVE AGAINST RESPONDENT
CORPORATION AND ITS DIRECTORS WITH RESPECT TO SECTION 30 (INSIDER'S
The Court of Appeals promulgated a Decision19 on 20 August 1998. It determined
DUTY TO DISCOLSED [sic] WHEN TRADING) AND 36 (DIRECTORS OFFICERS AND
that there were no implementing rules and regulations regarding disclosure, insider
PRINCIPAL STOCKHOLDERS) OF THE REVISED SECURITIES ACT; AND
trading, or any of the provisions of the Revised Securities Acts which the
respondents allegedly violated. The Court of Appeals likewise noted that it found no III THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE AND
statutory authority for the SEC to initiate and file any suit for civil liability under PROSECUTION BEFORE THE PED AND THE SICD RULES OF PROCEDURE ON
Sections 8, 30 and 36 of the Revised Securities Act. Thus, it ruled that no civil, ADMINISTRATIVE ACTIONS/PROCEEDINGS25 ARE INVALID AS THEY FAIL TO
criminal or administrative proceedings may possibly be held against the respondents COMPLY WITH THE STATUTORY REQUIREMENTS CONTAINED IN THE
without violating their rights to due process and equal protection. It further resolved ADMINISTRATIVE CODE OF 1987.
that absent any implementing rules, the SEC cannot be allowed to quash the
assailed Omnibus Orders for the sole purpose of re-filing the same case against the The petition is impressed with merit.
respondents.20
Before discussing the merits of this case, it should be noted that while this case was
The Court of Appeals further decided that the Rules of Practice and Procedure pending in this Court, Republic Act No. 8799, otherwise known as the Securities
Before the PED, which took effect on 14 April 1990, did not comply with the Regulation Code, took effect on 8 August 2000. Section 8 of Presidential Decree No.
statutory requirements contained in the Administrative Code of 1997. Section 8, 902-A, as amended, which created the PED, was already repealed as provided for in
Rule V of the Rules of Practice and Procedure Before the PED affords a party the Section 76 of the Securities Regulation Code:
right to be present but without the right to cross-examine witnesses presented
against him, in violation of Section 12(3), Chapter 3, Book VII of the Administrative SEC. 76. Repealing Clause. - The Revised Securities Act (Batas Pambansa Blg. 178),
Code. 21 as amended, in its entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A,
as amended, are hereby repealed. All other laws, orders, rules and regulations, or
In the dispositive portion of its Decision, dated 20 August 1998, the Court of parts thereof, inconsistent with any provision of this Code are hereby repealed or
Appeals ruled that22: modified accordingly.

WHEREFORE, [herein petitioner SEC's] Motion for Leave to Quash SEC Omnibus Thus, under the new law, the PED has been abolished, and the Securities Regulation
Orders is hereby DENIED. The petition for certiorari, prohibition and mandamus is Code has taken the place of the Revised Securities Act.
GRANTED. Consequently, all proceedings taken against [herein respondents] in this
case, including the Omnibus Orders of January 25, 1995 and March 30, 1995 are The Court now proceeds with a discussion of the present case.
declared null and void. The writ of preliminary injunction is hereby made permanent
I. Sctions 8, 30 and 36 of the Revised Securities Act do not require the enactment
and, accordingly, [SEC] is hereby prohibited from taking cognizance or initiating any
of implementing rules to make them binding and effective.
action, be they civil, criminal, or administrative against [respondents] with respect
to Sections 8 (Procedure for Registration), 30 (Insider's duty to disclose when
The Court of Appeals ruled that absent any implementing rules for Sections 8, 30 mandate of the statute.32 Moreover, where the statute contains sufficient standards
and 36 of the Revised Securities Act, no civil, criminal or administrative actions can and an unmistakable intent, as in the case of Sections 30 and 36 of the Revised
possibly be had against the respondents without violating their right to due process Securities Act, there should be no impediment to its implementation.
and equal protection, citing as its basis the case Yick Wo v. Hopkins.26 This is
untenable. The reliance placed by the Court of Appeals in Yick Wo v. Hopkins33 shows a glaring
error. In the cited case, this Court found unconstitutional an ordinance which gave
In the absence of any constitutional or statutory infirmity, which may concern the board of supervisors authority to refuse permission to carry on laundries located
Sections 30 and 36 of the Revised Securities Act, this Court upholds these in buildings that were not made of brick and stone, because it violated the equal
provisions as legal and binding. It is well settled that every law has in its favor the protection clause and was highly discriminatory and hostile to Chinese residents and
presumption of validity. Unless and until a specific provision of the law is declared not because the standards provided therein were vague or ambiguous.
invalid and unconstitutional, the same is valid and binding for all intents and
purposes.27 The mere absence of implementing rules cannot effectively invalidate This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of
provisions of law, where a reasonable construction that will support the law may be the Revised Securities Act, such that the acts proscribed and/or required would not
given. In People v. Rosenthal,28 this Court ruled that: be understood by a person of ordinary intelligence.

In this connection we cannot pretermit reference to the rule that "legislation should Section 30 of the Revised Securities Act
not be held invalid on the ground of uncertainty if susceptible of any reasonable
Section 30 of the Revised Securities Act reads:
construction that will support and give it effect. An Act will not be declared
inoperative and ineffectual on the ground that it furnishes no adequate means to Sec. 30. Insider's duty to disclose when trading. - (a) It shall be unlawful for an
secure the purpose for which it is passed, if men of common sense and reason can insider to sell or buy a security of the issuer, if he knows a fact of special
devise and provide the means, and all the instrumentalities necessary for its significance with respect to the issuer or the security that is not generally available,
execution are within the reach of those intrusted therewith." (25 R.C.L., pp. 810, unless (1) the insider proves that the fact is generally available or (2) if the other
811) party to the transaction (or his agent) is identified, (a) the insider proves that the
other party knows it, or (b) that other party in fact knows it from the insider or
In Garcia v. Executive Secretary,29 the Court underlined the importance of the
otherwise.
presumption of validity of laws and the careful consideration with which the
judiciary strikes down as invalid acts of the legislature: (b) "Insider" means (1) the issuer, (2) a director or officer of, or a person
controlling, controlled by, or under common control with, the issuer, (3) a person
The policy of the courts is to avoid ruling on constitutional questions and to presume
whose relationship or former relationship to the issuer gives or gave him access to a
that the acts of the political departments are valid in the absence of a clear and
fact of special significance about the issuer or the security that is not generally
unmistakable showing to the contrary. To doubt is to sustain. This presumption is
available, or (4) a person who learns such a fact from any of the foregoing insiders
based on the doctrine of separation of powers which enjoins upon each department
as defined in this subsection, with knowledge that the person from whom he learns
a becoming respect for the acts of the other departments. The theory is that as the
the fact is such an insider.
joint act of Congress and the President of the Philippines, a law has been carefully
studied and determined to be in accordance with the fundamental law before it was (c) A fact is "of special significance" if (a) in addition to being material it would be
finally enacted. likely, on being made generally available, to affect the market price of a security to
a significant extent, or (b) a reasonable person would consider it especially
The necessity for vesting administrative authorities with power to make rules and
important under the circumstances in determining his course of action in the light of
regulations is based on the impracticability of lawmakers' providing general
such factors as the degree of its specificity, the extent of its difference from
regulations for various and varying details of management.30 To rule that the
information generally available previously, and its nature and reliability.
absence of implementing rules can render ineffective an act of Congress, such as
the Revised Securities Act, would empower the administrative bodies to defeat the (d) This section shall apply to an insider as defined in subsection (b) (3) hereof only
legislative will by delaying the implementing rules. To assert that a law is less than to the extent that he knows of a fact of special significance by virtue of his being an
a law, because it is made to depend on a future event or act, is to rob the insider.
Legislature of the power to act wisely for the public welfare whenever a law is
passed relating to a state of affairs not yet developed, or to things future and The provision explains in simple terms that the insider's misuse of nonpublic and
impossible to fully know.31 It is well established that administrative authorities undisclosed information is the gravamen of illegal conduct. The intent of the law is
have the power to promulgate rules and regulations to implement a given statute the protection of investors against fraud, committed when an insider, using secret
and to effectuate its policies, provided such rules and regulations conform to the information, takes advantage of an uninformed investor. Insiders are obligated to
terms and standards prescribed by the statute as well as purport to carry into effect disclose material information to the other party or abstain from trading the shares
its general policies. Nevertheless, it is undisputable that the rules and regulations of his corporation. This duty to disclose or abstain is based on two factors: first, the
cannot assert for themselves a more extensive prerogative or deviate from the existence of a relationship giving access, directly or indirectly, to information
intended to be available only for a corporate purpose and not for the personal (b.1) Reasonable Person - The second definition given to a fact of special
benefit of anyone; and second, the inherent unfairness involved when a party takes significance involves the judgment of a "reasonable person." Contrary to the
advantage of such information knowing it is unavailable to those with whom he is allegations of the respondents, a "reasonable person" is not a problematic legal
dealing.34 concept that needs to be clarified for the purpose of giving effect to a statute;
rather, it is the standard on which most of our legal doctrines stand. The doctrine on
In the United States (U.S.), the obligation to disclose or abstain has been negligence uses the discretion of the "reasonable man" as the standard.38 A
traditionally imposed on corporate "insiders," particularly officers, directors, or purchaser in good faith must also take into account facts which put a "reasonable
controlling stockholders, but that definition has since been expanded.35 The term man" on his guard.39 In addition, it is the belief of the reasonable and prudent man
"insiders" now includes persons whose relationship or former relationship to the that an offense was committed that sets the criteria for probable cause for a
issuer gives or gave them access to a fact of special significance about the issuer or warrant of arrest.40 This Court, in such cases, differentiated the reasonable and
the security that is not generally available, and one who learns such a fact from an prudent man from "a person with training in the law such as a prosecutor or a
insider knowing that the person from whom he learns the fact is such an insider. judge," and identified him as "the average man on the street," who weighs facts
Insiders have the duty to disclose material facts which are known to them by virtue and circumstances without resorting to the calibrations of our technical rules of
of their position but which are not known to persons with whom they deal and evidence of which his knowledge is nil. Rather, he relies on the calculus of common
which, if known, would affect their investment judgment. In some cases, however, sense of which all reasonable men have in abundance.41 In the same vein, the U.S.
there may be valid corporate reasons for the nondisclosure of material information. Supreme Court similarly determined its standards by the actual significance in the
Where such reasons exist, an issuer's decision not to make any public disclosures is deliberations of a "reasonable investor," when it ruled in TSC Industries, Inc. v.
not ordinarily considered as a violation of insider trading. At the same time, the Northway, Inc.,42 that the determination of materiality "requires delicate
undisclosed information should not be improperly used for non-corporate purposes, assessments of the inferences a ‘reasonable shareholder' would draw from a given
particularly to disadvantage other persons with whom an insider might transact, and set of facts and the significance of those inferences to him."
therefore the insider must abstain from entering into transactions involving such
securities.36 (b.2) Nature and Reliability - The factors affecting the second definition of a "fact of
special significance," which is of such importance that it is expected to affect the
judgment of a reasonable man, were substantially lifted from a test of materiality
pronounced in the case In the Matter of Investors Management Co., Inc.43:
Respondents further aver that under Section 30 of the Revised Securities Act, the
SEC still needed to define the following terms: "material fact," "reasonable person," Among the factors to be considered in determining whether information is material
"nature and reliability" and "generally available." 37 In determining whether or not under this test are the degree of its specificity, the extent to which it differs from
these terms are vague, these terms must be evaluated in the context of Section 30 information previously publicly disseminated, and its reliability in light of its nature
of the Revised Securties Act. To fully understand how the terms were used in the and source and the circumstances under which it was received.
aforementioned provision, a discussion of what the law recognizes as a fact of
special significance is required, since the duty to disclose such fact or to abstain It can be deduced from the foregoing that the "nature and reliability" of a significant
from any transaction is imposed on the insider only in connection with a fact of fact in determining the course of action a reasonable person takes regarding
special significance. securities must be clearly viewed in connection with the particular circumstances of
a case. To enumerate all circumstances that would render the "nature and
Under the law, what is required to be disclosed is a fact of "special significance" reliability" of a fact to be of special significance is close to impossible. Nevertheless,
which may be (a) a material fact which would be likely, on being made generally the proper adjudicative body would undoubtedly be able to determine if facts of a
available, to affect the market price of a security to a significant extent, or (b) one certain "nature and reliability" can influence a reasonable person's decision to
which a reasonable person would consider especially important in determining his retain, sell or buy securities, and thereafter explain and justify its factual findings in
course of action with regard to the shares of stock. its decision.

(a) Material Fact - The concept of a "material fact" is not a new one. As early as (c) Materiality Concept - A discussion of the "materiality concept" would be relevant
1973, the Rules Requiring Disclosure of Material Facts by Corporations Whose to both a material fact which would affect the market price of a security to a
Securities Are Listed In Any Stock Exchange or Registered/Licensed Under the significant extent and/or a fact which a reasonable person would consider in
Securities Act, issued by the SEC on 29 January 1973, explained that "[a] fact is determining his or her cause of action with regard to the shares of stock.
material if it induces or tends to induce or otherwise affect the sale or purchase of Significantly, what is referred to in our laws as a fact of special significance is
its securities." Thus, Section 30 of the Revised Securities Act provides that if a fact referred to in the U.S. as the "materiality concept" and the latter is similarly not
affects the sale or purchase of securities, as well as its price, then the insider would provided with a precise definition. In Basic v. Levinson,44 the U.S. Supreme Court
be required to disclose such information to the other party to the transaction cautioned against confining materiality to a rigid formula, stating thus:
involving the securities. This is the first definition given to a "fact of special
significance." A bright-line rule indeed is easier to follow than a standard that requires the
exercise of judgment in the light of all the circumstances. But ease of application
alone is not an excuse for ignoring the purposes of the Securities Act and Congress' securities exchange, also with the exchange, of the amount of all equity securities
policy decisions. Any approach that designates a single fact or occurrence as always of such issuer of which he is the beneficial owner, and within ten days after the
determinative of an inherently fact-specific finding such as materiality, must close of each calendar month thereafter, if there has been a change in such
necessarily be overinclusive or underinclusive. ownership during such month, shall file with the Commission, and if such security is
registered on a securities exchange, shall also file with the exchange, a statement
Moreover, materiality "will depend at any given time upon a balancing of both the indicating his ownership at the close of the calendar month and such changes in his
indicated probability that the event will occur and the anticipated magnitude of the ownership as have occurred during such calendar month. (Emphasis provided.)
event in light of the totality of the company activity."45 In drafting the Securities
Act of 1934, the U.S. Congress put emphasis on the limitations to the definition of Section 36(a) refers to the "beneficial owner." Beneficial owner has been defined in
materiality: the following manner:

Although the Committee believes that ideally it would be desirable to have absolute [F]irst, to indicate the interest of a beneficiary in trust property (also called
certainty in the application of the materiality concept, it is its view that such a goal "equitable ownership"); and second, to refer to the power of a corporate
is illusory and unrealistic. The materiality concept is judgmental in nature and it is shareholder to buy or sell the shares, though the shareholder is not registered in
not possible to translate this into a numerical formula. The Committee's advice to the corporation's books as the owner. Usually, beneficial ownership is distinguished
the [SEC] is to avoid this quest for certainty and to continue consideration of from naked ownership, which is the enjoyment of all the benefits and privileges of
materiality on a case-by-case basis as disclosure problems are identified." House ownership, as against possession of the bare title to property.47
Committee on Interstate and Foreign Commerce, Report of the Advisory Committee
on Corporate Disclosure to the Securities and Exchange Commission, 95th Cong., Even assuming that the term "beneficial ownership" was vague, it would not affect
1st Sess., 327 (Comm.Print 1977). (Emphasis provided.)46 respondents' case, where the respondents are directors and/or officers of the
corporation, who are specifically required to comply with the reportorial
(d) Generally Available - Section 30 of the Revised Securities Act allows the insider requirements under Section 36(a) of the Revised Securities Act. The validity of a
the defense that in a transaction of securities, where the insider is in possession of statute may be contested only by one who will sustain a direct injury as a result of
facts of special significance, such information is "generally available" to the public. its enforcement.48
Whether information found in a newspaper, a specialized magazine, or any
cyberspace media be sufficient for the term "generally available" is a matter which Sections 30 and 36 of the Revised Securities Act were enacted to promote full
may be adjudged given the particular circumstances of the case. The standards disclosure in the securities market and prevent unscrupulous individuals, who by
cannot remain at a standstill. A medium, which is widely used today was, at some their positions obtain non-public information, from taking advantage of an
previous point in time, inaccessible to most. Furthermore, it would be difficult to uninformed public. No individual would invest in a market which can be manipulated
approximate how the rules may be applied to the instant case, where investigation by a limited number of corporate insiders. Such reaction would stifle, if not stunt,
has not even been started. Respondents failed to allege that the negotiations of the growth of the securities market. To avert the occurrence of such an event,
their agreement with GHB were made known to the public through any form of Section 30 of the Revised Securities Act prevented the unfair use of non-public
media for there to be a proper appreciation of the issue presented. information in securities transactions, while Section 36 allowed the SEC to monitor
the transactions entered into by corporate officers and directors as regards the
Section 36(a) of the Revised Securities Act securities of their companies.

As regards Section 36(a) of the Revised Securities Act, respondents claim that the
term "beneficial ownership" is vague and that it requires implementing rules to give
effect to the law. Section 36(a) of the Revised Securities Act is a straightforward In the case In the Matter of Investor's Management Co.,49 it was cautioned that
provision that imposes upon (1) a beneficial owner of more than ten percent of any "the broad language of the anti-fraud provisions," which include the provisions on
class of any equity security or (2) a director or any officer of the issuer of such insider trading, should not be "circumscribed by fine distinctions and rigid
security, the obligation to submit a statement indicating his or her ownership of the classifications." The ambit of anti-fraud provisions is necessarily broad so as to
issuer's securities and such changes in his or her ownership thereof. The said embrace the infinite variety of deceptive conduct.50
provision reads:
In Tatad v. Secretary of Department of Energy,51 this Court brushed aside a
Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is contention, similar to that made by the respondents in this case, that certain words
directly or indirectly the beneficial owner of more than ten per centum of any [class] or phrases used in a statute do not set determinate standards, declaring that:
of any equity security which is registered pursuant to this Act, or who is [a] director
Petitioners contend that the words "as far as practicable," "declining" and "stable"
or an officer of the issuer of such security, shall file, at the time of the registration
should have been defined in R.A. No. 8180 as they do not set determinate and
of such security on a securities exchange or by the effective date of a registration
determinable standards. This stubborn submission deserves scant consideration.
statement or within ten days after he becomes such a beneficial owner, director or
The dictionary meanings of these words are well settled and cannot confuse men of
officer, a statement with the Commission and, if such security is registered on a
reasonable intelligence. x x x. The fear of petitioners that these words will result in
the exercise of executive discretion that will run riot is thus groundless. To be sure, Section 5. Submission of Documents - During the preliminary conference/hearing,
the Court has sustained the validity of similar, if not more general standards in or immediately thereafter, the Hearing Officer may require the parties to
other cases. simultaneously submit their respective verified position papers accompanied by all
supporting documents and the affidavits of their witnesses, if any which shall take
Among the words or phrases that this Court upheld as valid standards were the place of their direct testimony. The parties shall furnish each other with copies
"simplicity and dignity,"52 "public interest,"53 and "interests of law and order."54 of the position papers together with the supporting affidavits and documents
submitted by them.
The Revised Securities Act was approved on 23 February 1982. The fact that the
Full Disclosure Rules were promulgated by the SEC only on 24 July 1996 does not Section 6. Determination of necessity of hearing. - Immediately after the
render ineffective in the meantime Section 36 of the Revised Securities Act. It is submission by the parties of their position papers and supporting documents, the
already unequivocal that the Revised Securities Act requires full disclosure and the Hearing Officer shall determine whether there is a need for a formal hearing. At this
Full Disclosure Rules were issued to make the enforcement of the law more stage, he may, in his discretion, and for the purpose of making such determination,
consistent, efficient and effective. It is equally reasonable to state that the elicit pertinent facts or information, including documentary evidence, if any, from
disclosure forms later provided by the SEC, do not, in any way imply that no any party or witness to complete, as far as possible, the facts of the case. Facts or
compliance was required before the forms were provided. The effectivity of a statute information so elicited may serve as basis for his clarification or simplifications of
which imposes reportorial requirements cannot be suspended by the issuance of the issues in the case. Admissions and stipulation of facts to abbreviate the
specified forms, especially where compliance therewith may be made even without proceedings shall be encouraged.
such forms. The forms merely made more efficient the processing of requirements
already identified by the statute. Section 7. Disposition of Case. If the Hearing Officer finds no necessity of further
hearing after the parties have submitted their position papers and supporting
For the same reason, the Court of Appeals made an evident mistake when it ruled documents, he shall so inform the parties stating the reasons therefor and shall ask
that no civil, criminal or administrative actions can possibly be had against the them to acknowledge the fact that they were so informed by signing the minutes of
respondents in connection with Sections 8, 30 and 36 of the Revised Securities Act the hearing and the case shall be deemed submitted for resolution.
due to the absence of implementing rules. These provisions are sufficiently clear
and complete by themselves. Their requirements are specifically set out, and the As such, the PED Rules provided that the Hearing Officer may require the parties to
acts which are enjoined are determinable. In particular, Section 855 of the Revised submit their respective verified position papers, together with all supporting
Securities Act is a straightforward enumeration of the procedure for the registration documents and affidavits of witnesses. A formal hearing was not mandatory; it was
of securities and the particular matters which need to be reported in the registration within the discretion of the Hearing Officer to determine whether there was a need
statement thereof. The Decision, dated 20 August 1998, provides no valid reason to for a formal hearing. Since, according to the foregoing rules, the holding of a
exempt the respondent IRC from such requirements. The lack of implementing rules hearing before the PED is discretionary, then the right to cross-examination could
cannot suspend the effectivity of these provisions. Thus, this Court cannot find any not have been demanded by either party.
cogent reason to prevent the SEC from exercising its authority to investigate
respondents for violation of Section 8 of the Revised Securities Act. Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative
Code, entitled "Adjudication," does not affect the investigatory functions of the
II. The right to cross-examination is not absolute and cannot be demanded during agencies. The law creating the PED, Section 8 of Presidential Decree No. 902-A, as
investigative proceedings before the PED. amended, defines the authority granted to the PED, thus:

In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that SEC. 8. The Prosecution and Enforcement Department shall have, subject to the
the PED Rules of Practice and Procedure was invalid since Section 8, Rule V56 Commission's control and supervision, the exclusive authority to investigate, on
thereof failed to provide for the parties' right to cross-examination, in violation of complaint or motu proprio, any act or omission of the Board of Directors/Trustees of
the Administrative Code of 1987 particularly Section 12(3), Chapter 3, Book VII corporations, or of partnerships, or of other associations, or of their stockholders,
thereof. This ruling is incorrect. officers or partners, including any fraudulent devices, schemes or representations,
in violation of any law or rules and regulations administered and enforced by the
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically Commission; to file and prosecute in accordance with law and rules and regulations
stated that the proceedings before the PED are summary in nature: issued by the Commission and in appropriate cases, the corresponding criminal or
civil case before the Commission or the proper court or body upon prima facie
Section 4. Nature of Proceedings - Subject to the requirements of due process,
finding of violation of any laws or rules and regulations administered and enforced
proceedings before the "PED" shall be summary in nature not necessarily adhering
by the Commission; and to perform such other powers and functions as may be
to or following the technical rules of evidence obtaining in the courts of law. The
provided by law or duly delegated to it by the Commission. (Emphasis provided.)
Rules of Court may apply in said proceedings in suppletory character whenever
practicable. The law creating PED empowers it to investigate violations of the rules and
regulations promulgated by the SEC and to file and prosecute such cases. It fails to
Rule V of the PED Rules of Practice and Procedure further specified that:
mention any adjudicatory functions insofar as the PED is concerned. Thus, the PED xxxx
Rules of Practice and Procedure need not comply with the provisions of the
Administrative Code on adjudication, particularly Section 12(3), Chapter 3, Book (h) Suspends or revokes, after proper notice and hearing in accordance with these
VII. Rules, the franchise or certificate of registration of corporations, partnerships or
associations, upon any of the following grounds:
In Cariño v. Commission on Human Rights,57 this Court sets out the distinction
between investigative and adjudicative functions, thus: 1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the corporation can do or is doing to the
"Investigate," commonly understood, means to examine, explore, inquire or delve great prejudice of or damage to the general public;
or probe into, research on, study. The dictionary definition of "investigate" is "to 3. Refusal to comply or defiance of any lawful order of the Commission restraining
observe or study closely; inquire into systematically: "to search or inquire into" xx commission of acts which would amount to a grave violation of its franchise;
to subject to an official probe xx: to conduct an official inquiry." The purpose of an xxxx
(j) Imposes charges, fines and fees, which by law, it is authorized to collect;
investigation, of course is to discover, to find out, to learn, obtain information.
xxxx
Nowhere included or intimated is the notion of settling, deciding or resolving a
Section 2. Powers of the Hearing Officer. The Hearing Officer shall have the
controversy involved in the facts inquired into by application of the law to the facts following powers:
established by the inquiry. xxx
4. To cite and/or declare any person in direct or indirect contempt in accordance
The legal meaning of "investigate" is essentially the same: "(t)o follow up step by with pertinent provisions of the Rules of Court.
step by patient inquiry or observation. To trace or track; to search into; to examine
and inquire into with care and accuracy; to find out by careful inquisition; Even assuming that these are adjudicative functions, the PED, in the instant case,
examination; the taking of evidence; a legal inquiry;" "to inquire; to make an exercised its investigative powers; thus, respondents do not have the requisite
investigation," "investigation" being in turn described as "(a)n administrative standing to assail the validity of the rules on adjudication. A valid source of a
function, the exercise of which ordinarily does not require a hearing. 2 Am J2d Adm statute or a rule can only be contested by one who will sustain a direct injury as a
L Sec. 257; xx an inquiry, judicial or otherwise, for the discovery and collection of result of its enforcement.58 In the instant case, respondents are only being
facts concerning a certain matter or matters." investigated by the PED for their alleged failure to disclose their negotiations with
GHB and the transactions entered into by its directors involving IRC shares. The
"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate,
respondents have not shown themselves to be under any imminent danger of
judge, decide, determine, resolve, rule on, settle. The dictionary defines the term as
sustaining any personal injury attributable to the exercise of adjudicative functions
"to settle finally (the rights and duties of parties to a court case) on the merits of
by the SEC. They are not being or about to be subjected by the PED to charges,
issues raised: xx to pass judgment on: settle judicially: xx act as judge." And
fees or fines; to citations for contempt; or to the cancellation of their certificate of
"adjudge" means "to decide or rule upon as a judge or with judicial or quasi-judicial
registration under Section 1(h), Rule II of the PED Rules of Practice and Procedure.
powers: xx to award or grant judicially in a case of controversy x x x."
To repeat, the only powers which the PED was likely to exercise over the
In a legal sense, "adjudicate" means: "To settle in the exercise of judicial authority.
respondents were investigative in nature, to wit:
To determine finally. Synonymous with adjudge in its strictest sense;" and
"adjudge" means: "To pass on judicially, to decide, settle, or decree, or to sentence Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to
or condemn. x x x Implies a judicial determination of a fact, and the entry of a Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the
judgment." Prosecution and Enforcement Department is primarily charged with the following:

There is no merit to the respondent's averment that the sections under Chapter 3, xxxx
Book VII of the Administrative Code, do not distinguish between investigative and
adjudicatory functions. Chapter 3, Book VII of the Administrative Code, is b. Initiates proper investigation of corporations and partnerships or persons, their
unequivocally entitled "Adjudication." books, records and other properties and assets, involving their business
transactions, in coordination with the operating department involved;

xxxx
Respondents insist that the PED performs adjudicative functions, as enumerated
under Section 1(h) and (j), Rule II; and Section 2(4), Rule VII of the PED Rules of e. Files and prosecutes civil or criminal cases before the Commission and other
Practice and Procedure: courts of justice involving violations of laws and decrees enforced by the
Commission and the rules and regulations promulgated thereunder;
Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to
Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the
Prosecution and Enforcement Department is primarily charged with the following:
f. Prosecutes erring directors, officers and stockholders of corporations and The Securities Regulations Code absolutely repealed the Revised Securities Act.
partnerships, commercial paper issuers or persons in accordance with the pertinent While the absolute repeal of a law generally deprives a court of its authority to
rules on procedures; penalize the person charged with the violation of the old law prior to its appeal, an
exception to this rule comes about when the repealing law punishes the act
The authority granted to the PED under Section 1(b), (e), and (f), Rule II of the PED previously penalized under the old law. The Court, in Benedicto v. Court of Appeals,
Rules of Practice and Procedure, need not comply with Section 12, Chapter 3, Rule sets down the rules in such instances:64
VII of the Administrative Code, which affects only the adjudicatory functions of
administrative bodies. Thus, the PED would still be able to investigate the As a rule, an absolute repeal of a penal law has the effect of depriving the court of
respondents under its rules for their alleged failure to disclose their negotiations its authority to punish a person charged with violation of the old law prior to its
with GHB and the transactions entered into by its directors involving IRC shares. repeal. This is because an unqualified repeal of a penal law constitutes a legislative
act of rendering legal what had been previously declared as illegal, such that the
This is not to say that administrative bodies performing adjudicative functions are offense no longer exists and it is as if the person who committed it never did so.
required to strictly comply with the requirements of Chapter 3, Rule VII of the There are, however, exceptions to the rule. One is the inclusion of a saving clause in
Administrative Code, particularly, the right to cross-examination. It should be noted the repealing statute that provides that the repeal shall have no effect on pending
that under Section 2.2 of Executive Order No. 26, issued on 7 October 1992, actions. Another exception is where the repealing act reenacts the former statute
abbreviated proceedings are prescribed in the disposition of administrative cases: and punishes the act previously penalized under the old law. In such instance, the
act committed before the reenactment continues to be an offense in the statute
2. Abbreviation of Proceedings. All administrative agencies are hereby directed to
books and pending cases are not affected, regardless of whether the new penalty to
adopt and include in their respective Rules of Procedure the following provisions:
be imposed is more favorable to the accused. (Emphasis provided.)
xxxx
In the present case, a criminal case may still be filed against the respondents
2.2 Rules adopting, unless otherwise provided by special laws and without prejudice despite the repeal, since Sections 8, 65 12,66 26,67 2768 and 2369 of the
to Section 12, Chapter 3, Book VII of the Administrative Code of 1987, the Securities Regulations Code impose duties that are substantially similar to Sections
mandatory use of affidavits in lieu of direct testimonies and the preferred use of 8, 30 and 36 of the repealed Revised Securities Act.
depositions whenever practicable and convenient.
Section 8 of the Revised Securities Act, which previously provided for the
As a consequence, in proceedings before administrative or quasi-judicial bodies, registration of securities and the information that needs to be included in the
such as the National Labor Relations Commission and the Philippine Overseas registration statements, was expanded under Section 12, in connection with Section
Employment Agency, created under laws which authorize summary proceedings, 8 of the Securities Regulations Code. Further details of the information required to
decisions may be reached on the basis of position papers or other documentary be disclosed by the registrant are explained in the Amended Implementing Rules
evidence only. They are not bound by technical rules of procedure and evidence. 59 and Regulations of the Securities Regulations Code, issued on 30 December 2003,
In fact, the hearings before such agencies do not connote full adversarial particularly Sections 8 and 12 thereof.
proceedings.60 Thus, it is not necessary for the rules to require affiants to appear
Section 30 of the Revised Securities Act has been reenacted as Section 27 of the
and testify and to be cross-examined by the counsel of the adverse party. To
Securities Regulations Code, still penalizing an insider's misuse of material and non-
require otherwise would negate the summary nature of the administrative or quasi-
public information about the issuer, for the purpose of protecting public investors.
judicial proceedings.61 In Atlas Consolidated Mining and Development Corporation
Section 26 of the Securities Regulations Code even widens the coverage of
v. Factoran, Jr.,62 this Court stated that:
punishable acts, which intend to defraud public investors through various devices,
[I]t is sufficient that administrative findings of fact are supported by evidence, or misinformation and omissions.
negatively stated, it is sufficient that findings of fact are not shown to be
Section 23 of the Securities Regulations Code was practically lifted from Section
unsupported by evidence. Substantial evidence is all that is needed to support an
36(a) of the Revised Securities Act. Both provisions impose upon (1) a beneficial
administrative finding of fact, and substantial evidence is "such relevant evidence as
owner of more than ten percent of any class of any equity security or (2) a director
a reasonable mind might accept as adequate to support a conclusion."
or any officer of the issuer of such security, the obligation to submit a statement
In order to comply with the requirements of due process, what is required, among indicating his or her ownership of the issuer's securities and such changes in his or
other things, is that every litigant be given reasonable opportunity to appear and her ownership thereof.
defend his right and to introduce relevant evidence in his favor.63
Clearly, the legislature had not intended to deprive the courts of their authority to
III. The Securities Regulations Code did not repeal Sections 8, 30 and 36 of the punish a person charged with violation of the old law that was repealed; in this
Revised Securities Act since said provisions were reenacted in the new law. case, the Revised Securities Act.
IV. The SEC retained the jurisdiction to investigate violations of the Revised whether an offense has been committed, and whether there is probable cause for
Securities Act, reenacted in the Securities Regulations Code, despite the abolition of the accused to have committed an offense:
the PED.
A preliminary investigation is merely inquisitorial, and it is often the only means of
Section 53 of the Securities Regulations Code clearly provides that criminal discovering the persons who may be reasonably charged with a crime, to enable the
complaints for violations of rules and regulations enforced or administered by the fiscal to prepare the complaint or information. It is not a trial of the case on the
SEC shall be referred to the Department of Justice (DOJ) for preliminary merits and has no purpose except that of determining whether a crime has been
investigation, while the SEC nevertheless retains limited investigatory powers.70 committed or whether there is probable cause to believe that the accused is guilty
Additionally, the SEC may still impose the appropriate administrative sanctions thereof.76
under Section 54 of the aforementioned law.71
Under Section 45 of the Revised Securities Act, which is entitled Investigations,
In Morato v. Court of Appeals,72 the cases therein were still pending before the PED Injunctions and Prosecution of Offenses, the Securities Exchange Commission (SEC)
for investigation and the SEC for resolution when the Securities Regulations Code has the authority to "make such investigations as it deems necessary to determine
was enacted. The case before the SEC involved an intra-corporate dispute, while the whether any person has violated or is about to violate any provision of this Act
subject matter of the other case investigated by the PED involved the schemes, XXX." After a finding that a person has violated the Revised Securities Act, the SEC
devices, and violations of pertinent rules and laws of the company's board of may refer the case to the DOJ for preliminary investigation and prosecution.
directors. The enactment of the Securities Regulations Code did not result in the
dismissal of the cases; rather, this Court ordered the transfer of one case to the While the SEC investigation serves the same purpose and entails substantially
proper regional trial court and the SEC to continue with the investigation of the similar duties as the preliminary investigation conducted by the DOJ, this process
other case. cannot simply be disregarded. In Baviera v. Paglinawan,77 this Court enunciated
that a criminal complaint is first filed with the SEC, which determines the existence
The case at bar is comparable to the aforecited case. In this case, the SEC already of probable cause, before a preliminary investigation can be commenced by the
commenced the investigative proceedings against respondents as early as 1994. DOJ. In the aforecited case, the complaint filed directly with the DOJ was dismissed
Respondents were called to appear before the SEC and explain their failure to on the ground that it should have been filed first with the SEC. Similarly, the
disclose pertinent information on 14 August 1994. Thereafter, the SEC Chairman, offense was a violation of the Securities Regulations Code, wherein the procedure
having already made initial findings that respondents failed to make timely for criminal prosecution was reproduced from Section 45 of the Revised Securities
disclosures of their negotiations with GHB, ordered a special investigating panel to Act. 78 This Court affirmed the dismissal, which it explained thus:
hear the case. The investigative proceedings were interrupted only by the writ of
preliminary injunction issued by the Court of Appeals, which became permanent by The Court of Appeals held that under the above provision, a criminal complaint for
virtue of the Decision, dated 20 August 1998, in C.A.-G.R. SP No. 37036. During the violation of any law or rule administered by the SEC must first be filed with the
pendency of this case, the Securities Regulations Code repealed the Revised latter. If the Commission finds that there is probable cause, then it should refer the
Securities Act. As in Morato v. Court of Appeals, the repeal cannot deprive SEC of its case to the DOJ. Since petitioner failed to comply with the foregoing procedural
jurisdiction to continue investigating the case; or the regional trial court, to hear requirement, the DOJ did not gravely abuse its discretion in dismissing his
any case which may later be filed against the respondents. complaint in I.S. No. 2004-229.

V. The instant case has not yet prescribed. A criminal charge for violation of the Securities Regulation Code is a specialized
dispute. Hence, it must first be referred to an administrative agency of special
Respondents have taken the position that this case is moot and academic, since any competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will not
criminal complaint that may be filed against them resulting from the SEC's determine a controversy involving a question within the jurisdiction of the
investigation of this case has already prescribed.73 They point out that the administrative tribunal, where the question demands the exercise of sound
prescription period applicable to offenses punished under special laws, such as administrative discretion requiring the specialized knowledge and expertise of said
violations of the Revised Securities Act, is twelve years under Section 1 of Act No. administrative tribunal to determine technical and intricate matters of fact. The
3326, as amended by Act No. 3585 and Act No. 3763, entitled "An Act to Establish Securities Regulation Code is a special law. Its enforcement is particularly vested in
Periods of Prescription for Violations Penalized by Special Acts and Municipal the SEC. Hence, all complaints for any violation of the Code and its implementing
Ordinances and to Provide When Prescription Shall Begin to Act."74 Since the rules and regulations should be filed with the SEC. Where the complaint is criminal
offense was committed in 1994, they reasoned that prescription set in as early as in nature, the SEC shall indorse the complaint to the DOJ for preliminary
2006 and rendered this case moot. Such position, however, is incongruent with the investigation and prosecution as provided in Section 53.1 earlier quoted.
factual circumstances of this case, as well as the applicable laws and jurisprudence.
We thus agree with the Court of Appeals that petitioner committed a fatal
It is an established doctrine that a preliminary investigation interrupts the procedural lapse when he filed his criminal complaint directly with the DOJ. Verily,
prescription period.75 A preliminary investigation is essentially a determination no grave abuse of discretion can be ascribed to the DOJ in dismissing petitioner's
complaint.
The said case puts in perspective the nature of the investigation undertaken by the and neither the SEC nor the DOJ can conduct any investigation against the
SEC, which is a requisite before a criminal case may be referred to the DOJ. The respondents, who, in the first place, sought the injunction to prevent their
Court declared that it is imperative that the criminal prosecution be initiated before prosecution. All that the SEC could do in order to break the impasse was to have
the SEC, the administrative agency with the special competence. the Decision of the Court of Appeals overturned, as it had done at the earliest
opportunity in this case. Therefore, the period during which the SEC was prevented
It should be noted that the SEC started investigative proceedings against the from continuing with its investigation should not be counted against it. The law on
respondents as early as 1994. This investigation effectively interrupted the the prescription period was never intended to put the prosecuting bodies in an
prescription period. However, said proceedings were disrupted by a preliminary impossible bind in which the prosecution of a case would be placed way beyond
injunction issued by the Court of Appeals on 5 May 1995, which effectively enjoined their control; for even if they avail themselves of the proper remedy, they would
the SEC from filing any criminal, civil, or administrative case against the still be barred from investigating and prosecuting the case.
respondents herein.79 Thereafter, on 20 August 1998, the appellate court issued
the assailed Decision in C.A. G.R. SP. No. 37036 ordering that the writ of injunction Indubitably, the prescription period is interrupted by commencing the proceedings
be made permanent and prohibiting the SEC from taking cognizance of and for the prosecution of the accused. In criminal cases, this is accomplished by
initiating any action against herein respondents. The SEC was bound to comply with initiating the preliminary investigation. The prosecution of offenses punishable
the aforementioned writ of preliminary injunction and writ of injunction issued by under the Revised Securities Act and the Securities Regulations Code is initiated by
the Court of Appeals enjoining it from continuing with the investigation of the filing of a complaint with the SEC or by an investigation conducted by the SEC
respondents for 12 years. Any deviation by the SEC from the injunctive writs would motu proprio. Only after a finding of probable cause is made by the SEC can the
be sufficient ground for contempt. Moreover, any step the SEC takes in defiance of DOJ instigate a preliminary investigation. Thus, the investigation that was
such orders will be considered void for having been taken against an order issued commenced by the SEC in 1995, soon after it discovered the questionable acts of
by a court of competent jurisdiction. the respondents, effectively interrupted the prescription period. Given the nature
and purpose of the investigation conducted by the SEC, which is equivalent to the
An investigation of the case by any other administrative or judicial body would preliminary investigation conducted by the DOJ in criminal cases, such investigation
likewise be impossible pending the injunctive writs issued by the Court of Appeals. would surely interrupt the prescription period.
Given the ruling of this Court in Baviera v. Paglinawan,80 the DOJ itself could not
have taken cognizance of the case and conducted its preliminary investigation VI. The Court of Appeals was justified in denying SEC's Motion for Leave to Quash
without a prior determination of probable cause by the SEC. Thus, even presuming SEC Omnibus Orders dated 23 October 1995.
that the DOJ was not enjoined by the Court of Appeals from conducting a
preliminary investigation, any preliminary investigation conducted by the DOJ would The SEC avers that the Court of Appeals erred when it denied its Motion for Leave
have been a futile effort since the SEC had only started with its investigation when to Quash SEC Omnibus Orders, dated 23 October 1995, in the light of its admission
respondents themselves applied for and were granted an injunction by the Court of that the PED had the sole authority to investigate the present case. On this matter,
Appeals. this Court cannot agree with the SEC.

Moreover, the DOJ could not have conducted a preliminary investigation or filed a In the assailed decision, the Court of Appeals denied the SEC's Motion for Leave to
criminal case against the respondents during the time that issues on the effectivity Quash SEC Omnibus Orders, since it found other issues that were more important
of Sections 8, 30 and 36 of the Revised Securities Act and the PED Rules of Practice than whether or not the PED was the proper body to investigate the matter. Its
and Procedure were still pending before the Court of Appeals. After the Court of refusal was premised on its earlier finding that no criminal, civil, or administrative
Appeals declared the aforementioned statutory and regulatory provisions invalid case may be filed against the respondents under Sections 8, 30 and 36 of the
and, thus, no civil, criminal or administrative case may be filed against the Revised Securities Act, due to the absence of any implementing rules and
respondents for violations thereof, the DOJ would have been at a loss, as there was regulations. Moreover, the validity of the PED Rules on Practice and Procedure was
no statutory provision which respondents could be accused of violating. also raised as an issue. The Court of Appeals, thus, reasoned that if the quashal of
the orders was granted, then it would be deprived of the opportunity to determine
Accordingly, it is only after this Court corrects the erroneous ruling of the Court of the validity of the aforementioned rules and statutory provisions. In addition, the
Appeals in its Decision dated 20 August 1998 that either the SEC or DOJ may SEC would merely pursue the same case without the Court of Appeals having
properly conduct any kind of investigation against the respondents for violations of determined whether or not it may do so in accordance with due process
Sections 8, 30 and 36 of the Revised Securities Act. Until then, the prescription requirements. Absent a determination of whether the SEC may file a case against
period is deemed interrupted. the respondents based on the assailed provisions of the Revised Securities Act, it
would have been improper for the Court of Appeals to grant the SEC's Motion for
To reiterate, the SEC must first conduct its investigations and make a finding of Leave to Quash SEC Omnibus Orders.
probable cause in accordance with the doctrine pronounced in Baviera v.
Paglinawan.81 In this case, the DOJ was precluded from initiating a preliminary In all, this Court rules that no implementing rules were needed to render effective
investigation since the SEC was halted by the Court of Appeals from continuing with Sections 8, 30 and 36 of the Revised Securities Act; nor was the PED Rules of
its investigation. Such a situation leaves the prosecution of the case at a standstill, Practice and Procedure invalid, prior to the enactment of the Securities Regulations
Code, for failure to provide parties with the right to cross-examine the witnesses
presented against them. Thus, the respondents may be investigated by the
appropriate authority under the proper rules of procedure of the Securities
Regulations Code for violations of Sections 8, 30, and 36 of the Revised Securities
Act.82

IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court hereby
REVERSES the assailed Decision of the Court of Appeals promulgated on 20 August
1998 in CA-G.R. SP No. 37036 and LIFTS the permanent injunction issued pursuant
thereto. This Court further DECLARES that the investigation of the respondents for
violations of Sections 8, 30 and 36 of the Revised Securities Act may be undertaken
by the proper authorities in accordance with the Securities Regulations Code. No
costs.

SO ORDERED.