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.
DECISION
CHICO-NAZARIO, J.:
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 C.A.-G.R. SP
No. 37036, enjoining petitioner Securities and Exchange Commission (SEC) from taking
cognizance of or initiating any action against the respondent corporation Interport
Resources Corporation (IRC) and members of its board of directors, respondents Manuel
S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph
Sy and Santiago Tanchan, Jr., with respect to 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 assailed SEC Omnibus Orders of 25 January
1995 and 30 March 1995, were declared void.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement
with Ganda Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC
acquired 100% or the entire capital stock of Ganda Energy Holdings, Inc. (GEHI), 2 which
would own and operate a 102 megawatt (MW) gas turbine power-generating barge. The
agreement also stipulates that GEHI would 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 by mid-September of 1994. In exchange, IRC will issue to
GHB 55% of the expanded capital stock of IRC amounting to 40.88 billion shares which
had a total par value of P488.44 million.3
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club,
Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in Makati. Under the

Agreement, GHB, a member of the Westmont Group of Companies in Malaysia, shall

extend or arrange a loan required to pay for the proposed acquisition by IRC of PRCI. 4
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 Exchange
and the SEC, but that the facsimile machine of the SEC could not receive it. Upon the
advice of the SEC, the IRC sent the press release on the morning of 9 August 1994. 5
The SEC averred that it received reports that IRC failed to make timely public
disclosures of its negotiations with GHB and that some of its directors, respondents
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 SEC a
copy of its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further
directed all principal officers of IRC to appear at a hearing before the Brokers and
Exchanges Department (BED) of the SEC to explain IRC's failure to immediately disclose
the information as required by the Rules on Disclosure of Material Facts. 6
In compliance with the SEC Chairman's directive, the IRC sent a letter dated 16 August
1994 to the SEC, attaching thereto copies of the Memorandum of Agreement. Its
directors, Manuel Recto, Rene Villarica and Pelagio Ricalde, also appeared before the
SEC on 22 August 1994 to explain IRC's alleged failure to immediately disclose material
information as required under the Rules on Disclosure of Material Facts. 7
On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the
Rules on Disclosure of Material Facts, in connection with the Old Securities Act of 1936,
when it failed to make timely disclosure of its negotiations with GHB. In addition, the
SEC pronounced that some of the officers and directors of IRC entered into transactions
involving IRC shares in violation of Section 30, in relation to Section 36, of the Revised
Securities Act.8
Respondents filed an Omnibus Motion, dated 21 September 1994, which was
superseded by an Amended Omnibus Motion, filed on 18 October 1994, alleging that 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,
jurisdiction was conferred upon the Prosecution and Enforcement Department (PED) of
the SEC. Respondents also claimed that the SEC violated their right to due process
when it ordered that the respondents appear before the SEC and "show cause why no
administrative, civil or criminal sanctions should be imposed on them," and, thus,
shifted the burden of proof to the respondents. Lastly, they sought to have their cases

tried jointly given the identical factual situations surrounding the alleged violation
committed by the respondents.10
Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994,
wherein they moved for discontinuance of the investigations and the proceedings before
the SEC until the undue publicity had abated and the investigating officials had become
reasonably free from prejudice and public pressure.11
No formal hearings were conducted in connection with the aforementioned motions, but
on 25 January 1995, the SEC issued an Omnibus Order which thus disposed of the
same in this wise:12
WHEREFORE, premised on the foregoing considerations, the Commission
resolves and hereby rules:
1. To create a special investigating panel to hear and decide the instant case in
accordance with the Rules of Practice and Procedure Before the Prosecution and
Enforcement Department (PED), Securities and Exchange Commission, to be
composed of Attys. James K. Abugan, Medardo Devera (Prosecution and
Enforcement Department), and Jose Aquino (Brokers and Exchanges
Department), which is hereby directed to expeditiously resolve the case by
conducting continuous hearings, if possible.
2. To recall the show cause orders dated September 19, 1994 requiring the
respondents to appear and show cause why no administrative, civil or criminal
sanctions should be imposed on them.

proceeding with the hearing of the case against respondents herein. On 5 May 1995, the
Court of Appeals granted their motion and issued a writ 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 Rules and
Presidential Decree No. 902-A, and not by the special body whose creation the SEC had
earlier ordered.18
The Court of Appeals promulgated a Decision19 on 20 August 1998. It determined that
there were no implementing rules and regulations regarding disclosure, insider 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 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. Thus, it ruled that no civil, criminal or administrative
proceedings may possibly be held against the respondents without violating their rights
to due process and equal protection. It further resolved 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 respondents. 20
The Court of Appeals further decided that the Rules of Practice and Procedure Before the
PED, which took effect on 14 April 1990, did not comply with the statutory requirements
contained in the Administrative Code of 1997. Section 8, Rule V of the Rules of Practice
and Procedure Before the PED affords a party the 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 Code. 21

3. To deny the Motion for Continuance for lack of merit.

13

Respondents filed an Omnibus Motion for Partial Reconsideration, questioning the

creation of the special investigating panel to hear the case and the denial of the Motion
for Continuance. The SEC denied reconsideration in its Omnibus Order dated 30 March
1995.14
The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. 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 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 investigating and

In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals
ruled that22:
WHEREFORE, [herein petitioner SEC's] Motion for Leave to Quash SEC
Omnibus Orders is herebyDENIED. The petition for certiorari, prohibition and
mandamus is GRANTED. Consequently, all proceedings taken against [herein
respondents] in this case, including the Omnibus Orders of January 25, 1995
and March 30, 1995 are declared null and void. The writ of preliminary
injunction is hereby made permanent and, accordingly, [SEC] is hereby
prohibited from taking cognizance or initiating any action, be they civil,

criminal, or administrative against [respondents] with respect to Sections 8

(Procedure for Registration), 30 (Insider's duty to disclose when trading) and 36
(Directors, Officers and Principal Stockholders) in relation to Sections 46
(Administrative sanctions) 56 (Penalties) 44 (Liabilities of Controlling persons)
and 45 (Investigations, injunctions and prosecution of offenses) of the Revised
Securities Act and Section 144 (Violations of the Code) of the Corporation Code.
(Emphasis provided.)
The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a
Resolution23 issued on 30 September 1998.

Before discussing the merits of this case, it should be noted that while this case was
pending in this Court, Republic Act No. 8799, otherwise known as the Securities
Regulation Code, took effect on 8 August 2000. Section 8 of Presidential Decree No. 902A, as amended, which created the PED, was already repealed as provided for in Section
76 of the Securities Regulation Code:
SEC. 76. Repealing Clause. - The Revised Securities Act (Batas Pambansa Blg.
178), 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 parts thereof, inconsistent with any provision of this Code are
hereby repealed or modified accordingly.

Hence, the present petition, which relies on the following grounds 24:
I
THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONER'S MOTION
FOR LEAVE TO QUASH THE ASSAILED SEC OMNIBUS ORDERS DATED
JANUARY 25 AND MARCH 30, 1995.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO
STATUTORY AUTHORITY WHATSOEVER FOR PETITIONER SEC TO INITIATE
AND FILE ANY SUIT BE THEY CIVIL, CRIMINAL OR ADMINISTRATIVE AGAINST
RESPONDENT CORPORATION AND ITS DIRECTORS WITH RESPECT TO
SECTION 30 (INSIDER'S DUTY TO DISCOLSED [sic] WHEN TRADING) AND 36
(DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS) OF THE REVISED
SECURITIES ACT; AND
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE
AND PROSECUTION BEFORE THE PED AND THE SICD RULES OF
PROCEDURE ON ADMINISTRATIVE ACTIONS/PROCEEDINGS25 ARE INVALID
AS THEY FAIL TO COMPLY WITH THE STATUTORY REQUIREMENTS
CONTAINED IN THE ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.

Thus, under the new law, the PED has been abolished, and the Securities Regulation
Code has taken the place of the Revised Securities Act.
The Court now proceeds with a discussion of the present case.
I. Sctions 8, 30 and 36 of the Revised Securities Act do not require the enactment
of implementing rules to make them binding and effective.
The Court of Appeals ruled that absent any implementing rules for Sections 8, 30 and
36 of the Revised Securities Act, no civil, criminal or administrative actions can possibly
be had against the respondents without violating their right to due process and equal
protection, citing as its basis the case Yick Wo v. Hopkins.26 This is untenable.
In the absence of any constitutional or statutory infirmity, which may concern Sections
30 and 36 of the Revised Securities Act, this Court upholds these provisions as legal and
binding. It is well settled that every law has in its favor the presumption of validity.
Unless and until a specific provision of the law is declared invalid and unconstitutional,
the same is valid and binding for all intents and purposes. 27 The mere absence of
implementing rules cannot effectively invalidate provisions of law, where a reasonable
construction that will support the law may be given. In People v. Rosenthal,28 this Court
ruled that:
In this connection we cannot pretermit reference to the rule that "legislation
should not be held invalid on the ground of uncertainty if susceptible of any
reasonable 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 secure the purpose for which it is passed, if men of common sense and

reason can devise and provide the means, and all the instrumentalities
necessary for its execution are within the reach of those intrusted therewith." (25
R.C.L., pp. 810, 811)
In Garcia v. Executive Secretary,29 the Court underlined the importance of the
presumption of validity of laws and the careful consideration with which the judiciary
strikes down as invalid acts of the legislature:
The policy of the courts is to avoid ruling on constitutional questions and to
presume that the acts of the political departments are valid in the absence of a
clear and unmistakable showing to the contrary. To doubt is to sustain. This
presumption is based on the doctrine of separation of powers which enjoins
upon each department a becoming respect for the acts of the other departments.
The theory is that as the 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 finally enacted.
The necessity for vesting administrative authorities with power to make rules and
regulations is based on the impracticability of lawmakers' providing general regulations
for various and varying details of management.30 To rule that the 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 legislative will by
delaying the implementing rules. To assert that a law is less than a law, because it is
made to depend on a future event or act, is to rob the 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 impossible to fully know. 31 It is well established that
administrative authorities have the power to promulgate rules and regulations to
implement a given statute and to effectuate its policies, provided such rules and
regulations conform to the terms and standards prescribed by the statute as well as
purport to carry into effect its general policies. Nevertheless, it is undisputable that the
rules and regulations cannot assert for themselves a more extensive prerogative or
deviate from the mandate of the statute.32Moreover, where the statute contains sufficient
standards and an unmistakable intent, as in the case of Sections 30 and 36 of the
Revised Securities Act, there should be no impediment to its implementation.
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 the
board of supervisors authority to refuse permission to carry on laundries located in
buildings that were not made of brick and stone, because it violated the equal protection

clause and was highly discriminatory and hostile to Chinese residents and not because
the standards provided therein were vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the
Revised Securities Act, such that the acts proscribed and/or required would not be
understood by a person of ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insider's duty to disclose when trading. - (a) It shall be unlawful for
an insider to sell or buy a security of the issuer, if he knows a fact of special
significance with respect to the issuer or the security that is not generally
available, unless (1) the insider proves that the fact is generally available or (2) if
the other 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 otherwise.
(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
whose relationship or former relationship to the issuer gives or gave him access
to a fact of special significance about the issuer or the security that is not
generally available, or (4) a person who learns such a fact from any of the
foregoing insiders as defined in this subsection, with knowledge that the person
from whom he learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being material it would be
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
important under the circumstances in determining his course of action in the
light of such factors as the degree of its specificity, the extent of its difference
from information generally available previously, and its nature and reliability.
(d) This section shall apply to an insider as defined in subsection (b) (3) hereof
only to the extent that he knows of a fact of special significance by virtue of his
being an insider.

The provision explains in simple terms that the insider's misuse of nonpublic and
undisclosed information is the gravamen of illegal conduct. The intent of the law is the
protection of investors against fraud, committed when an insider, using secret
information, takes advantage of an uninformed investor. Insiders are obligated to
disclose material information to the other party or abstain from trading the shares of his
corporation. This duty to disclose or abstain is based on two factors: first, 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 benefit of anyone; and
second, the inherent unfairness involved when a party takes advantage of such
information knowing it is unavailable to those with whom he is dealing. 34
In the United States (U.S.), the obligation to disclose or abstain has been traditionally
imposed on corporate "insiders," particularly officers, directors, or controlling
stockholders, but that definition has since been expanded. 35 The term "insiders" now
includes persons whose relationship or former relationship to the issuer gives or gave
them access to a fact of special significance about the issuer or the security that is not
generally available, and one who learns such a fact from an insider knowing that the
person from whom he learns the fact is such an insider. Insiders have the duty to
disclose material facts which are known to them by virtue of their position but which are
not known to persons with whom they deal and which, if known, would affect their
investment judgment. In some cases, however, there may be valid corporate reasons for
the nondisclosure of material information. Where such reasons exist, an issuer's
decision not to make any public disclosures is not ordinarily considered as a violation of
insider trading. At the same time, the undisclosed information should not be improperly
used for non-corporate purposes, particularly to disadvantage other persons with whom
an insider might transact, and therefore the insider must abstain from entering into
transactions involving such securities.36
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,"
"nature and reliability" and "generally available."

37

In determining whether or not

these terms are vague, these terms must be evaluated in the context of Section 30 of the
Revised Securties Act. To fully understand how the terms were used in the
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 from any
transaction is imposed on the insider only in connection with a fact of special
significance.

Under the law, what is required to be disclosed is a fact of "special significance" which
may be (a) a material fact which would be likely, on being made generally available, to
affect the market price of a security to a significant extent, or (b) one which a reasonable
person would consider especially important in determining his course of action with
regard to the shares of stock.
(a) Material Fact - The concept of a "material fact" is not a new one. As early as 1973,
the Rules Requiring Disclosure of Material Facts by Corporations Whose Securities Are
Listed In Any Stock Exchange or Registered/Licensed Under the Securities Act, issued by
the SEC on 29 January 1973, explained that "[a] fact is material if it induces or tends to
induce or otherwise affect the sale or purchase of its securities." Thus, Section 30 of the
Revised Securities Act provides that if a fact affects the sale or purchase of securities, as
well as its price, then the insider would be required to disclose such information to the
other party to the transaction involving the securities. This is the first definition given to
a "fact of special significance."
(b.1) Reasonable Person - The second definition given to a fact of special significance
involves the judgment of a "reasonable person." Contrary to the allegations of the
respondents, a "reasonable person" is not a problematic legal 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 negligence uses the discretion of the
"reasonable man" as the standard.38 A purchaser in good faith must also take into
account facts which put a "reasonable man" on his guard.39 In addition, it is the belief of
the reasonable and prudent man that an offense was committed that sets the criteria for
probable cause for a warrant of arrest.40 This Court, in such cases, differentiated the
reasonable and prudent man from "a person with training in the law such as a
prosecutor or a judge," and identified him as "the average man on the street," who
weighs facts and circumstances without resorting to the calibrations of our technical
rules of evidence of which his knowledge is nil. Rather, he relies on the calculus of
common sense of which all reasonable men have in abundance.41 In the same vein, the
U.S. Supreme Court similarly determined its standards by the actual significance in the
deliberations of a "reasonable investor," when it ruled in TSC Industries, Inc. v.
Northway, Inc.,42 that the determination of materiality "requires delicate assessments of
the inferences a reasonable shareholder' would draw from a given set of facts and the
significance of those inferences to him."
(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:

Although the Committee believes that ideally it would be desirable to have

absolute certainty in the application of the materiality concept, it is its view that
such a goal is illusory and unrealistic. The materiality concept is judgmental

Among the factors to be considered in determining whether information is

material under this test are the degree of its specificity, the extent to which it
differs from information previously publicly disseminated, and its reliability in
light of its nature and source and the circumstances under which it was
received.
It can be deduced from the foregoing that the "nature and reliability" of a significant fact
in determining the course of action a reasonable person takes regarding securities must
be clearly viewed in connection with the particular circumstances of a case. To
enumerate all circumstances that would render the "nature and reliability" of a fact to be
of special significance is close to impossible. Nevertheless, the proper adjudicative body
would undoubtedly be able to determine if facts of a certain "nature and reliability" can
influence a reasonable person's decision to retain, sell or buy securities, and thereafter
explain and justify its factual findings in its decision.
(c) Materiality Concept - A discussion of the "materiality concept" would be relevant to
both a material fact which would affect the market price of a security to a significant
extent and/or a fact which a reasonable person would consider in determining his or her
cause of action with regard to the shares of stock. Significantly, what is referred to in our
laws as a fact of special significance is referred to in the U.S. as the "materiality concept"
and the latter is similarly not provided with a precise definition. In Basic v.
Levinson,44 the U.S. Supreme Court cautioned against confining materiality to a rigid
formula, stating thus:
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' policy decisions. Any approach that designates a single fact or
occurrence as always determinative of an inherently fact-specific finding such as
materiality, must necessarily be overinclusive or underinclusive.
Moreover, materiality "will depend at any given time upon a balancing of both the
indicated probability that the event will occur and the anticipated magnitude of the
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 materiality:

in nature and it is not possible to translate this into a numerical formula.

The Committee's advice to the [SEC] is to avoid this quest for certainty and
to continue consideration of materiality on a case-by-case basis as
disclosure problems are identified." House Committee on Interstate and
Foreign Commerce, Report of the Advisory Committee on Corporate Disclosure to
the Securities and Exchange Commission, 95th Cong., 1st Sess., 327
(Comm.Print 1977). (Emphasis provided.)46
(d) Generally Available - Section 30 of the Revised Securities Act allows the insider the
defense that in a transaction of securities, where the insider is in possession of facts of
special significance, such information is "generally available" to the public. Whether
information found in a newspaper, a specialized magazine, or any cyberspace media be
sufficient for the term "generally available" is a matter which may be adjudged given the
particular circumstances of the case. The standards cannot remain at a standstill. A
medium, which is widely used today was, at some previous point in time, inaccessible to
most. Furthermore, it would be difficult to approximate how the rules may be applied to
the instant case, where investigation has not even been started. Respondents failed to
allege that the negotiations of their agreement with GHB were made known to the public
through any form of media for there to be a proper appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
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 provision that
imposes upon (1) a beneficial owner of more than ten percent of any class of any equity
security or (2) a director or any officer of the issuer of such security, the obligation to
submit a statement indicating his or her ownership of the issuer's securities and such
changes in his or her ownership thereof. The said provision reads:
Sec. 36. Directors, officers and principal stockholders. - (a) Every person who
is directly or indirectly the beneficial owner of more than ten per centum of any
[class] of any equity security which is registered pursuant to this Act, or who is
[a] director or an officer of the issuer of such security, shall file, at the time of the
registration of such security on a securities exchange or by the effective date of a

registration statement or within ten days after he becomes such a beneficial

owner, director or officer, a statement with the Commission and, if such security
is registered on a securities exchange, also with the exchange, of the amount of
all equity securities of such issuer of which he is the beneficial owner, and within
ten days after the close of each calendar month thereafter, if there has been a
change in such 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 indicating his ownership at the close of the calendar
month and such changes in his ownership as have occurred during such
calendar month. (Emphasis provided.)
Section 36(a) refers to the "beneficial owner." Beneficial owner has been defined in the
following manner:
[F]irst, to indicate the interest of a beneficiary in trust property (also called
"equitable ownership"); and second, to refer to the power of a corporate
shareholder to buy or sell the shares, though the shareholder is not registered in
the corporation's books as the owner. Usually, beneficial ownership is
distinguished from naked ownership, which is the enjoyment of all the benefits
and privileges of ownership, as against possession of the bare title to property. 47
Even assuming that the term "beneficial ownership" was vague, it would not affect
respondents' case, where the respondents are directors and/or officers of the
corporation, who are specifically required to comply with the reportorial requirements
under Section 36(a) of the Revised Securities Act. The validity of a statute may be
contested only by one who will sustain a direct injury as a result of its enforcement.48
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure
in the securities market and prevent unscrupulous individuals, who by their positions
obtain non-public information, from taking advantage of an uninformed public. No
individual would invest in a market which can be manipulated by a limited number of
corporate insiders. Such reaction would stifle, if not stunt, the growth of the securities
market. To avert the occurrence of such an event, Section 30 of the Revised Securities
Act prevented the unfair use of non-public information in securities transactions, while
Section 36 allowed the SEC to monitor the transactions entered into by corporate
officers and directors as regards the securities of their companies.
In the case In the Matter of Investor's Management Co.,49 it was cautioned that "the broad
language of the anti-fraud provisions," which include the provisions on insider trading,

should not be "circumscribed by fine distinctions and rigid classifications." The ambit of
anti-fraud provisions is necessarily broad so as to embrace the infinite variety of
deceptive conduct.50
In Tatad v. Secretary of Department of Energy,51 this Court brushed aside a contention,
similar to that made by the respondents in this case, that certain words or phrases used
in a statute do not set determinate standards, declaring that:
Petitioners contend that the words "as far as practicable," "declining" and
"stable" should have been defined in R.A. No. 8180 as they do not set
determinate and determinable standards. This stubborn submission deserves
scant consideration. The dictionary meanings of these words are well settled and
cannot confuse men of 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, the Court has sustained the validity of similar, if
not more general standards in other cases.
Among the words or phrases that this Court upheld as valid standards were "simplicity
and dignity,"52 "public interest,"53 and "interests of law and order."54
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 render
ineffective in the meantime Section 36 of the Revised Securities Act. It is already
unequivocal that the Revised Securities Act requires full disclosure and the Full
Disclosure Rules were issued to make the enforcement of the law more consistent,
efficient and effective. It is equally reasonable to state that the disclosure forms later
provided by the SEC, do not, in any way imply that no compliance was required before
the forms were provided. The effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of specified forms, especially where
compliance therewith may be made even without such forms. The forms merely made
more efficient the processing of requirements already identified by the statute.
For the same reason, the Court of Appeals made an evident mistake when it ruled that
no civil, criminal or administrative actions can possibly be had against the respondents
in connection with Sections 8, 30 and 36 of the Revised Securities Act due to the
absence of implementing rules. These provisions are sufficiently clear and complete by
themselves. Their requirements are specifically set out, and the acts which are enjoined
are determinable. In particular, Section 855 of the Revised Securities Act is a
straightforward enumeration of the procedure for the registration of securities and the

particular matters which need to be reported in the registration statement thereof. The
Decision, dated 20 August 1998, provides no valid reason to exempt the respondent IRC
from such requirements. The lack of implementing rules cannot suspend the effectivity
of these provisions. Thus, this Court cannot find any cogent reason to prevent the SEC
from exercising its authority to investigate respondents for violation of Section 8 of the
Revised Securities Act.
II. The right to cross-examination is not absolute and cannot be demanded during
investigative proceedings before the PED.
In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that the
PED Rules of Practice and Procedure was invalid since Section 8, Rule V 56 thereof failed
to provide for the parties' right to cross-examination, in violation of the Administrative
Code of 1987 particularly Section 12(3), Chapter 3, Book VII thereof. This ruling is
incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically stated
that the proceedings before the PED are summary in nature:
Section 4. Nature of Proceedings - Subject to the requirements of due process,
proceedings before the "PED" shall be summary in nature not necessarily
adhering to or following the technical rules of evidence obtaining in the courts of
law. The Rules of Court may apply in said proceedings in suppletory character
whenever practicable.
Rule V of the PED Rules of Practice and Procedure further specified that:
Section 5. Submission of Documents - During the preliminary
conference/hearing, or immediately thereafter, the Hearing Officer may require
the parties to simultaneously submit their respective verified position papers
accompanied by all supporting documents and the affidavits of their witnesses, if
any which shall take the place of their direct testimony. The parties shall furnish
each other with copies of the position papers together with the supporting
affidavits and documents submitted by them.
Section 6. Determination of necessity of hearing. - Immediately after the
submission by the parties of their position papers and supporting documents,
the Hearing Officer shall determine whether there is a need for a formal hearing.
At this stage, he may, in his discretion, and for the purpose of making such

determination, elicit pertinent facts or information, including documentary

evidence, if any, from any party or witness to complete, as far as possible, the
facts of the case. Facts or information so elicited may serve as basis for his
clarification or simplifications of the issues in the case. Admissions and
stipulation of facts to abbreviate the proceedings shall be encouraged.
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
documents, he shall so inform the parties stating the reasons therefor and shall
ask them to acknowledge the fact that they were so informed by signing the
minutes of the hearing and the case shall be deemed submitted for resolution.
As such, the PED Rules provided that the Hearing Officer may require the parties to
submit their respective verified position papers, together with all supporting documents
and affidavits of witnesses. A formal hearing was not mandatory; it was within the
discretion of the Hearing Officer to determine whether there was a need for a formal
hearing. Since, according to the foregoing rules, the holding of a hearing before the PED
is discretionary, then the right to cross-examination could not have been demanded by
either party.
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 agencies. The
law creating the PED, Section 8 of Presidential Decree No. 902-A, as amended, defines
the authority granted to the PED, thus:
SEC. 8. The Prosecution and Enforcement Department shall have, subject to the
Commission's control and supervision, the exclusive authority to investigate,
on complaint or motu proprio, any act or omission of the Board of
Directors/Trustees of corporations, or of partnerships, or of other associations,
or of their stockholders, officers or partners, including any fraudulent devices,
schemes or representations, in violation of any law or rules and regulations
administered and enforced by the Commission; to file and prosecutein
accordance with law and rules and regulations 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 finding of violation of
any laws or rules and regulations administered and enforced by the Commission;
and to perform such other powers and functions as may be provided by law or
duly delegated to it by the Commission. (Emphasis provided.)

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 mention any
adjudicatory functions insofar as the PED is concerned. Thus, the PED Rules of Practice
and Procedure need not comply with the provisions of the Administrative Code on
adjudication, particularly Section 12(3), Chapter 3, Book VII.
In Cario v. Commission on Human Rights, this Court sets out the distinction between
investigative and adjudicative functions, thus:
57

"Investigate," commonly understood, means to examine, explore, inquire or delve

or probe into, research on, study. The dictionary definition of "investigate" is "to
observe or study closely; inquire into systematically: "to search or inquire into" xx
to subject to an official probe xx: to conduct an official inquiry." The purpose of
an investigation, of course is to discover, to find out, to learn, obtain information.
Nowhere included or intimated is the notion of settling, deciding or resolving a
controversy involved in the facts inquired into by application of the law to the
facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "(t)o follow up step by
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; examination; the taking of evidence; a legal inquiry;" "to inquire; to
make an investigation," "investigation" being in turn described as "(a)n
administrative function, the exercise of which ordinarily does not require a
hearing. 2 Am J2d Adm L Sec. 257; xx an inquiry, judicial or otherwise, for the
discovery and collection of facts concerning a certain matter or matters."
"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate,
judge, decide, determine, resolve, rule on, settle. The dictionary defines the term
as "to settle finally (the rights and duties of parties to a court case) on the merits
of issues raised: xx to pass judgment on: settle judicially: xx act as judge." And
"adjudge" means "to decide or rule upon as a judge or with judicial or quasijudicial powers: xx to award or grant judicially in a case of controversy x x x."
In a legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. 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 or condemn. x x x
Implies a judicial determination of a fact, and the entry of a judgment."

There is no merit to the respondent's averment that the sections under Chapter 3, Book
VII of the Administrative Code, do not distinguish between investigative and adjudicatory
functions. Chapter 3, Book VII of the Administrative Code, is unequivocally entitled
"Adjudication."
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 Practice and
Procedure:
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:
xxxx
(h) Suspends or revokes, after proper notice and hearing in accordance with
these Rules, the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the following grounds:
1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the corporation can do or is doing to the
great prejudice of or damage to the general public;
3. Refusal to comply or defiance of any lawful order of the Commission
restraining commission of acts which would amount to a grave violation of its
franchise;
xxxx
(j) Imposes charges, fines and fees, which by law, it is authorized to collect;
xxxx
Section 2. Powers of the Hearing Officer. The Hearing Officer shall have the
following powers:
xxxx

4. To cite and/or declare any person in direct or indirect contempt in accordance

with pertinent provisions of the Rules of Court.
Even assuming that these are adjudicative functions, the PED, in the instant case,
exercised its investigative powers; thus, respondents do not have the requisite standing
to assail the validity of the rules on adjudication. A valid source of a statute or a rule
can only be contested by one who will sustain a direct injury as a result of its
enforcement.58 In the instant case, respondents are only being 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 respondents have not shown
themselves to be under any imminent danger of sustaining any personal injury
attributable to the exercise of adjudicative functions by the SEC. They are not being or
about to be subjected by the PED to charges, fees or fines; to citations for contempt; or to
the cancellation of their certificate of registration under Section 1(h), Rule II of the PED
Rules of Practice and Procedure.
To repeat, the only powers which the PED was likely to exercise over the respondents
were investigative in nature, to wit:
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:
xxxx
b. Initiates proper investigation of corporations and partnerships or persons,
their books, records and other properties and assets, involving their business
transactions, in coordination with the operating department involved;
xxxx
e. Files and prosecutes civil or criminal cases before the Commission and other
courts of justice involving violations of laws and decrees enforced by the
Commission and the rules and regulations promulgated thereunder;
f. Prosecutes erring directors, officers and stockholders of corporations and
partnerships, commercial paper issuers or persons in accordance with the
pertinent rules on procedures;

The authority granted to the PED under Section 1(b), (e), and (f), Rule II of the PED
Rules of Practice and Procedure, need not comply with Section 12, Chapter 3, Rule VII of
the Administrative Code, which affects only the adjudicatory functions of administrative
bodies. Thus, the PED would still be able to investigate the respondents under its rules
for their alleged failure to disclose their negotiations with GHB and the transactions
entered into by its directors involving IRC shares.
This is not to say that administrative bodies performing adjudicative functions are
required to strictly comply with the requirements of Chapter 3, Rule VII of the
Administrative Code, particularly, the right to cross-examination. It should be noted that
under Section 2.2 of Executive Order No. 26, issued on 7 October 1992, abbreviated
proceedings are prescribed in the disposition of administrative cases:
2. Abbreviation of Proceedings. All administrative agencies are hereby directed to
adopt and include in their respective Rules of Procedure the following provisions:
xxxx
2.2 Rules adopting, unless otherwise provided by special laws and without
prejudice to Section 12, Chapter 3, Book VII of the Administrative Code of 1987,
the mandatory use of affidavits in lieu of direct testimonies and the preferred use
of depositions whenever practicable and convenient.
As a consequence, in proceedings before administrative or quasi-judicial bodies, such as
the National Labor Relations Commission and the Philippine Overseas Employment
Agency, created under laws which authorize summary proceedings, decisions may be
reached on the basis of position papers or other documentary evidence only. They are
not bound by technical rules of procedure and evidence. 59 In fact, the hearings before
such agencies do not connote full adversarial proceedings.60 Thus, it is not necessary for
the rules to require affiants to appear and testify and to be cross-examined by the
counsel of the adverse party. To require otherwise would negate the summary nature of
the administrative or quasi-judicial proceedings.61 In Atlas Consolidated Mining and
Development Corporation v. Factoran, Jr.,62 this Court stated that:
[I]t is sufficient that administrative findings of fact are supported by evidence, or
negatively stated, it is sufficient that findings of fact are not shown to be
unsupported by evidence. Substantial evidence is all that is needed to support
an administrative finding of fact, and substantial evidence is "such relevant

evidence as a reasonable mind might accept as adequate to support a

conclusion."
In order to comply with the requirements of due process, what is required, among other
things, is that every litigant be given reasonable opportunity to appear and defend his
right and to introduce relevant evidence in his favor.63
III. The Securities Regulations Code did not repeal Sections 8, 30 and 36 of the
Revised Securities Act since said provisions were reenacted in the new law.
The Securities Regulations Code absolutely repealed the Revised Securities Act. While
the absolute repeal of a law generally deprives a court of its authority to 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 previously penalized under
the old law. The Court, in Benedicto v. Court of Appeals, sets down the rules in such
instances:64
As a rule, an absolute repeal of a penal law has the effect of depriving the court
of its authority to punish a person charged with violation of the old law prior to
its 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 offense no longer exists and it is as if the person who committed it
never did so. There are, however, exceptions to the rule. One is the inclusion of a
saving clause in the repealing statute that provides that the repeal shall have no
effect on pending actions. Another exception is where the repealing
act reenacts the former statute 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 books and pending cases are not
affected, regardless of whether the new penalty to be imposed is more favorable
to the accused. (Emphasis provided.)
In the present case, a criminal case may still be filed against the respondents despite the
repeal, since Sections 8,65 12,66 26,67 2768 and 2369 of the Securities Regulations Code
impose duties that are substantially similar to Sections 8, 30 and 36 of the repealed
Revised Securities Act.
Section 8 of the Revised Securities Act, which previously provided for the registration of
securities and the information that needs to be included in the registration statements,

was expanded under Section 12, in connection with Section 8 of the Securities
Regulations Code. Further details of the information required to be disclosed by the
registrant are explained in the Amended Implementing Rules and Regulations of the
Securities Regulations Code, issued on 30 December 2003, particularly Sections 8 and
12 thereof.
Section 30 of the Revised Securities Act has been reenacted as Section 27 of the
Securities Regulations Code, still penalizing an insider's misuse of material and nonpublic information about the issuer, for the purpose of protecting public investors.
Section 26 of the Securities Regulations Code even widens the coverage of punishable
acts, which intend to defraud public investors through various devices, misinformation
and omissions.
Section 23 of the Securities Regulations Code was practically lifted from Section 36(a) of
the Revised Securities Act. Both provisions impose upon (1) a beneficial owner of more
than ten percent of any class of any equity security or (2) a director or any officer of the
issuer of such security, the obligation to submit a statement indicating his or her
ownership of the issuer's securities and such changes in his or her ownership thereof.
Clearly, the legislature had not intended to deprive the courts of their authority to
punish a person charged with violation of the old law that was repealed; in this case, the
Revised Securities Act.
IV. The SEC retained the jurisdiction to investigate violations of the Revised
Securities Act, reenacted in the Securities Regulations Code, despite the abolition
of the PED.
Section 53 of the Securities Regulations Code clearly provides that criminal complaints
for violations of rules and regulations enforced or administered by the SEC shall be
referred to the Department of Justice (DOJ) for preliminary investigation, while the SEC
nevertheless retains limited investigatory powers. 70 Additionally, the SEC may still
impose the appropriate administrative sanctions under Section 54 of the aforementioned
law.71
In Morato v. Court of Appeals,72 the cases therein were still pending before the PED for
investigation and the SEC for resolution when the Securities Regulations Code was
enacted. The case before the SEC involved an intra-corporate dispute, while the subject
matter of the other case investigated by the PED involved the schemes, devices, and
violations of pertinent rules and laws of the company's board of 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 proper regional trial court and the SEC
to continue with the investigation of the other case.
The case at bar is comparable to the aforecited case. In this case, the SEC already
commenced the investigative proceedings against respondents as early as 1994.
Respondents were called to appear before the SEC and explain their failure to disclose
pertinent information on 14 August 1994. Thereafter, the SEC Chairman, having already
made initial findings that respondents failed to make timely disclosures of their
negotiations with GHB, ordered a special investigating panel to 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 virtue of the Decision,
dated 20 August 1998, in C.A.-G.R. SP No. 37036. During the pendency of this case, the
Securities Regulations Code repealed the Revised Securities Act. As in Morato v. Court of
Appeals, the repeal cannot deprive SEC of its jurisdiction to continue investigating the
case; or the regional trial court, to hear any case which may later be filed against the
respondents.
V. The instant case has not yet prescribed.
Respondents have taken the position that this case is moot and academic, since any
criminal complaint that may be filed against them resulting from the SEC's investigation
of this case has already prescribed.73 They point out that the prescription period
applicable to offenses punished under special laws, such as violations of the Revised
Securities Act, is twelve years under Section 1 of Act No. 3326, as amended by Act No.
3585 and Act No. 3763, entitled "An Act to Establish Periods of Prescription for
Violations Penalized by Special Acts and Municipal Ordinances and to Provide When
Prescription Shall Begin to Act."74 Since the offense was committed in 1994, they
reasoned that prescription set in as early as 2006 and rendered this case moot. Such
position, however, is incongruent with the factual circumstances of this case, as well as
the applicable laws and jurisprudence.
It is an established doctrine that a preliminary investigation interrupts the prescription
period.75 A preliminary investigation is essentially a determination whether an offense
has been committed, and whether there is probable cause for the accused to have
committed an offense:
A preliminary investigation is merely inquisitorial, and it is often the only means
of discovering the persons who may be reasonably charged with a crime, to

enable the fiscal to prepare the complaint or information. It is not a trial of the
case on the merits and has no purpose except that of determining whether a
crime has been committed or whether there is probable cause to believe that the
accused is guilty thereof.76
Under Section 45 of the Revised Securities Act, which is entitled Investigations,
Injunctions and Prosecution of Offenses, the Securities Exchange Commission (SEC) has
the authority to "make such investigations as it deems necessary to determine whether
any person has violated or is about to violate any provision of this Act XXX." After a
finding that a person has violated the Revised Securities Act, the SEC may refer the case
to the DOJ for preliminary investigation and prosecution.
While the SEC investigation serves the same purpose and entails substantially similar
duties as the preliminary investigation conducted by the DOJ, this process 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 of probable cause,
before a preliminary investigation can be commenced by the DOJ. In the aforecited case,
the complaint filed directly with the DOJ was dismissed on the ground that it should
have been filed first with the SEC. Similarly, the offense was a violation of the Securities
Regulations Code, wherein the procedure for criminal prosecution was reproduced from
Section 45 of the Revised Securities Act. 78 This Court affirmed the dismissal, which it
explained thus:
The Court of Appeals held that under the above provision, a criminal complaint
for violation of any law or rule administered by the SEC must first be filed with
the latter. If the Commission finds that there is probable cause, then it should
refer the case to the DOJ. Since petitioner failed to comply with the foregoing
procedural requirement, the DOJ did not gravely abuse its discretion in
dismissing his complaint in I.S. No. 2004-229.
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
competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will
not determine a controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the specialized knowledge and expertise of
said administrative tribunal to determine technical and intricate matters of fact.
The Securities Regulation Code is a special law. Its enforcement is particularly
vested in the SEC. Hence, all complaints for any violation of the Code and its

implementing rules and regulations should be filed with the SEC. Where the
complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ
for preliminary investigation and prosecution as provided in Section 53.1 earlier
quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal
procedural lapse when he filed his criminal complaint directly with the DOJ.
Verily, no grave abuse of discretion can be ascribed to the DOJ in dismissing
petitioner's complaint.

Moreover, the DOJ could not have conducted a preliminary investigation or filed a
criminal case against the respondents during the time that issues on the effectivity of
Sections 8, 30 and 36 of the Revised Securities Act and the PED Rules of Practice and
Procedure were still pending before the Court of Appeals. After the Court of Appeals
declared the aforementioned statutory and regulatory provisions invalid and, thus, no
civil, criminal or administrative case may be filed against the respondents for violations
thereof, the DOJ would have been at a loss, as there was no statutory provision which
respondents could be accused of violating.

The said case puts in perspective the nature of the investigation undertaken by the SEC,
which is a requisite before a criminal case may be referred to the DOJ. The Court
declared that it is imperative that the criminal prosecution be initiated before the SEC,
the administrative agency with the special competence.

Accordingly, it is only after this Court corrects the erroneous ruling of the Court of
Appeals in its Decision dated 20 August 1998 that either the SEC or DOJ may properly
conduct any kind of investigation against the respondents for violations of Sections 8, 30
and 36 of the Revised Securities Act. Until then, the prescription period is deemed
interrupted.

It should be noted that the SEC started investigative proceedings against the
respondents as early as 1994. This investigation effectively interrupted the prescription
period. However, said proceedings were disrupted by a preliminary injunction issued by
the Court of Appeals on 5 May 1995, which effectively enjoined the SEC from filing any
criminal, civil, or administrative case against the 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 be made permanent and prohibiting the SEC
from taking cognizance of and initiating any action against herein respondents. The SEC
was bound to comply with the aforementioned writ of preliminary injunction and writ of
injunction issued by the Court of Appeals enjoining it from continuing with the
investigation of respondents for 12 years. Any deviation by the SEC from the injunctive
writs would be sufficient ground for contempt. Moreover, any step the SEC takes in
defiance of such orders will be considered void for having been taken against an order
issued by a court of competent jurisdiction.

To reiterate, the SEC must first conduct its investigations and make a finding of probable
cause in accordance with the doctrine pronounced in Baviera v. Paglinawan. 81 In this
case, the DOJ was precluded from initiating a preliminary investigation since the SEC
was halted by the Court of Appeals from continuing with its investigation. Such a
situation leaves the prosecution of the case at a standstill, and neither the SEC nor the
DOJ can conduct any investigation against the respondents, who, in the first place,
sought the injunction to prevent their prosecution. All that the SEC could do in order to
break the impasse was to have 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 from continuing with its investigation should not be counted against it.
The law on the prescription period was never intended to put the prosecuting bodies in
an impossible bind in which the prosecution of a case would be placed way beyond their
control; for even if they avail themselves of the proper remedy, they would still be barred
from investigating and prosecuting the case.

An investigation of the case by any other administrative or judicial body would likewise
be impossible pending the injunctive writs issued by the Court of Appeals. 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 without a prior
determination of probable cause by the SEC. Thus, even presuming that the DOJ was
not enjoined by the Court of Appeals from conducting a preliminary investigation, any
preliminary investigation conducted by the DOJ would have been a futile effort since the
SEC had only started with its investigation when respondents themselves applied for and
were granted an injunction by the Court of Appeals.

Indubitably, the prescription period is interrupted by commencing the proceedings for

the prosecution of the accused. In criminal cases, this is accomplished by initiating the
preliminary investigation. The prosecution of offenses punishable under the Revised
Securities Act and the Securities Regulations Code is initiated by the filing of a
complaint with the SEC or by an investigation conducted by the SEC motu proprio. Only
after a finding of probable cause is made by the SEC can the DOJ instigate a preliminary
investigation. Thus, the investigation that was commenced by the SEC in 1995, soon
after it discovered the questionable acts of the respondents, effectively interrupted the
prescription period. Given the nature and purpose of the investigation conducted by the

SEC, which is equivalent to the preliminary investigation conducted by the DOJ in

criminal cases, such investigation would surely interrupt the prescription period.
VI. The Court of Appeals was justified in denying SEC's Motion for Leave to Quash
SEC Omnibus Orders dated 23 October 1995.
The SEC avers that the Court of Appeals erred when it denied its Motion for Leave to
Quash SEC Omnibus Orders, dated 23 October 1995, in the light of its admission that
the PED had the sole authority to investigate the present case. On this matter, this
Court cannot agree with the SEC.
In the assailed decision, the Court of Appeals denied the SEC's Motion for Leave to
Quash SEC Omnibus Orders, since it found other issues that were more important than
whether or not the PED was the proper body to investigate the matter. Its refusal was
premised on its earlier finding that no criminal, civil, or administrative case may be filed
against the respondents under Sections 8, 30 and 36 of the Revised Securities Act, due
to the absence of any implementing rules and regulations. Moreover, the validity of the
PED Rules on Practice and Procedure was 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 the validity of the aforementioned rules and statutory
provisions. In addition, the SEC would merely pursue the same case without the Court
of Appeals having determined whether or not it may do so in accordance with due
process requirements. Absent a determination of whether the SEC may file a case

against 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 Leave
to Quash SEC Omnibus Orders.
In all, this Court rules that no implementing rules were needed to render effective
Sections 8, 30 and 36 of the Revised Securities Act; nor was the PED Rules of 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.