Case Summary (G.R. No. 125469)
Facts: PALI’s Permit to Sell and Listing Application
PALI obtained an SEC Permit to Sell shares in January 1995. To facilitate trading, it applied to list its shares on the PSE on February 8, 1996. The PSE Listing Committee recommended approval, but before the Board acted, Marcos heirs asserted ownership claims on disputed PALI assets and requested deferral.
PSE’s Denial Based on Ownership Disputes
After PALI rebutted the heirs’ claims, the PSE sought PCGG comment and learned of an RTC-issued TRO protecting Marcos heirs’ interests. On March 27, 1996, the PSE Board denied listing, citing serious unresolved title disputes and potential risks to investor confidence.
SEC’s Reversal of PSE Decision
Invoking its authority under the Revised Securities Act and P.D. 902-A, the SEC on April 24, 1996, set aside the PSE denial and ordered immediate listing, subject to any further material disclosures. A May 9, 1996 order denied reconsideration and directed PALI to amend its registration statements to include all material facts.
Court of Appeals’ Affirmation of SEC Power
The Court of Appeals dismissed PSE’s petition, holding that the SEC has jurisdiction to review and reverse stock-exchange listing decisions. It reasoned that PSE’s monopoly over trading platforms requires regulatory oversight to prevent arbitrary exclusion of issuers.
PSE’s Challenge: Discretion and Jurisdiction Limits
PSE argued that under P.D. 902-A and the Revised Securities Act, the SEC’s powers over stock exchanges are limited. It asserted the business-judgment rule shields PSE’s listing decisions from SEC or judicial intrusion absent bad faith. PSE further contended that it lacked jurisdiction to list shares of a corporation whose assets were under PCGG sequestration and subject to forfeiture proceedings.
Supreme Court’s Analysis: Scope of SEC Authority
The Supreme Court confirmed that the SEC’s jurisdiction over exchanges is broad and includes the power to “alter or supplement” exchange rules to protect investors (P.D. 902-A, Sec. 6(j), (m); Revised Securities Act, Sec. 38(b)). It held that stock exchanges, though private corporations, are “businesses affected with public interest” and thus subject to SEC regulation to prevent abuse of monopoly.
Supreme Court’s Limit on SEC Intervention
The Court emphasized that SEC may only override an exchange’s decisions when its action is tainted by bad faith—a dishonest purpose or moral obliquity—not mere error in judgment. It reaffirmed the business-judgment rule: bona fide corporate decisions lie outside judicial or administrative review unless fraudulent or malicious.
Findings on PSE’s Good Faith Denial
Examining PSE’s decision-making, the Court found no evidence of bad faith. The unresolved claims by Marcos heirs, the PCGG’s involvement, existing sequestration orders, and potential military/naval reservation issues raised legitimate concerns about PALI’s title integrity and fitness to list. PSE’s refusal aimed to
...continue readingCase Syllabus (G.R. No. 125469)
Statutory and Regulatory Authority
- Section 1, Presidential Decree No. 902-A: The SEC is under the direct general supervision of the Office of the President.
- Section 3, Presidential Decree No. 902-A: The SEC has absolute jurisdiction, supervision, and control over corporations, partnerships, or associations granted primary franchises or licenses by the government, and may promulgate rules in the public interest.
- Section 6(j), Presidential Decree No. 902-A: The SEC may authorize the establishment and operation of stock exchanges and supervise and regulate them, including listing and delisting of securities.
- Section 6(m), Presidential Decree No. 902-A: The SEC may exercise powers implied or incidental to its express powers under the decree.
- Section 38(b), Revised Securities Act: The SEC may request a securities exchange to effect specified rule changes and, if refused, alter or supplement those rules to protect investors and insure fair dealing.
- Sections 4, 8, 9, 10, and 11, Revised Securities Act: Set forth the standards, disclosure requirements, and grounds for registration rejection of securities offered to the public.
Facts of the Case
- Puerto Azul Land, Inc. (PALI) secured from the SEC a Permit to Sell shares to the public in January 1995.
- PALI filed its listing application with the Philippine Stock Exchange, Inc. (PSE) on February 1996, attaching supporting documents.
- On February 8, 1996, the PSE Listing Committee recommended approval; before action by the Board of Governors, heirs of Ferdinand E. Marcos claimed ownership of certain PALI-titled properties and asked for deferral.
- PALI clarified the disputed hotel and resort facilities were owned by separate entities and that Ternate Development Corporation held only 1.20% of its shares. The Marcos heirs expanded their claim to other PALI properties.
- PSE referred the dispute to the PCGG; PCGG informed PSE on March 4, 1996 of a Temporary Restraining Order (TRO) barring interference with PALI’s public offering.
- On March 27, 1996, the PSE Board of Governors rejected PALI’s listing application, citing serious claims affecting PALI’s asset ownership and suitability to list.
Procedural History
- April 11, 1996: PALI requested the SEC to review PSE’s denial under SEC’s supervisory powers (Section 6(j), PD 902-A).
- April 24, 1996: SEC reversed PSE’s decision, ordering immediate listing of PALI shares, subject to any additional disclosure PSE deemed necessary.
- May 9, 1996: SEC denied PSE’s motion for reconsiderati