SEC vs. Bonifacio

Regular courts, including the RTC, have jurisdiction to review the validity or constitutionality of rules and regulations issued by administrative agencies in the exercise of quasi-legislative functions, while appeals from quasi-judicial adjudications of such agencies fall under the exclusive jurisdiction of the Court of Appeals via Rule 43. A statute may not be collaterally attacked through an injunction; its enforcement may only be enjoined if it is directly challenged and shown to be unconstitutional. However, an administrative agency's implementing rule that deviates from the statute it purports to enforce is ultra vires and may be enjoined to protect the affected parties' property rights.

The Securities and Exchange Commission (SEC) is the administrative agency mandated under Republic Act No. 8799 (the Securities Regulation Code) to administer the Code as a collegial body. The Philippine Stock Exchange (PSE) is the sole stock exchange in the Philippines, reorganized as a stock corporation and publicly listed pursuant to Section 33.2 of RA 8799, which requires that no industry or business group may beneficially own or control more than 20% of the voting rights of the exchange, with the SEC empowered to grant exemptions upon application. The Philippine Association of Securities Brokers and Dealers, Inc. (PASBDI) is an association whose members are broker-stockholders of the PSE, whose collective shareholdings exceeded the 20% statutory limit.

On December 23, 1992, the Makati Stock Exchange and Manila Stock Exchange merged to form what is now the Philippine Stock Exchange (PSE). Under Batas Pambansa Blg. 178 (the Revised Securities Act), only member-brokers of PSE were allowed to trade in securities listed therein. On August 8, 2000, Republic Act No. 8799, the Securities Regulation Code, was enacted, repealing Batas Pambansa Blg. 178 and mandating that stock exchanges be organized as stock corporations registered with the SEC. Section 33.2(c) of RA 8799 provides that no person may beneficially own or control more than 5% of the voting rights of the exchange, and no industry or business group may beneficially own or control more than 20% of the voting rights, with the SEC empowered to grant exemptions upon application where it finds that such ownership will not negatively impact the exchange's ability to operate in the public interest. The PSE was reorganized as a stock corporation and publicly listed.

On September 23, 2005, the SEC wrote to the PSE instructing compliance with Section 33.2(c), noting that brokers as an industry group owned at least 35.33% of the outstanding shares of the PSE, exceeding the 20% statutory limit. The PSE undertook steps to reduce broker ownership but proved insufficient, prompting it to request exemption. On July 20, 2006, the SEC granted the PSE one year — until July 20, 2007 — to comply. The PSE subsequently sought permanent exemption, which was denied, as was its request for a one-year extension. Upon the lapse of the reglementary period, the PSE failed to file any report of compliance. The SEC's transfer agent reported that brokers beneficially owned and controlled 42.27% of the total outstanding capital stock. The PSE was fined PHP 101,100.00 and directed to limit the voting stock of brokers as a group to 20% in the next stockholders' meeting. The PSE sought reconsideration, which was denied, though the SEC granted deferments in 2008 and 2009, allowing brokers to vote with their full shareholdings during those years' annual meetings.

For the 2010 Annual Stockholders' Meeting, the SEC directed the PSE to submit NOMELEC Rules expressly limiting individual voting rights to 5% and industry group voting rights to 20%. The SEC issued Resolution No. 86, Series of 2010, granting exemptive relief to certain institutional stockholders (GSIS, PLDT, San Miguel Corporation Retirement Plan, and Premier Capital Venture Corporation) and reiterating that the 20% voting limitation on industry or business groups under Section 33.2(c) should be applied to brokers. In a letter dated March 8, 2010, the SEC directed the PSE to limit the voting rights of brokers as an industry group to 20% of the total outstanding capital stock. In compliance, the PSE through its NOMELEC issued the 2010 NOMELEC Rules, but Rule 2 thereof stated that "the voting rights of brokers shall be limited to 20% of their total shareholdings" — a formulation that differed from the statutory language, which limited the industry group to 20% of the total outstanding capital stock.

The PASBDI, whose members are stockholders of the PSE, demanded that Rule 2 and all measures limiting the voting rights of its members be revoked, arguing that ownership of stock carries with it the right to participate in management through voting. The PSE refused, citing its compliance with SEC directives. On April 21, 2010, PASBDI and individual stockholders filed a Petition for Injunction with the RTC of Pasig City, docketed as SEC Case No. 10-139, seeking to restrain the SEC, PSE, and NOMELEC from implementing Resolution No. 86 and the 2010 NOMELEC Rules. The RTC issued a writ of preliminary injunction directing that all brokers be allowed to vote with their entire shareholdings for the May 1, 2010 meeting. For the 2011 meeting, the SEC again directed the PSE to incorporate the 20% limitation, and the PSE's 2011 NOMELEC Rules tracked the SEC's directive, limiting the voting rights of brokers to 20% of the total outstanding stock of the PSE — language consistent with the statute. PASBDI sought and obtained another injunction from the RTC for the 2011 meeting. The RTC later rendered a Decision permanently enjoining the SEC, PSE, and NOMELEC from imposing any limitation on the voting rights of PASBDI, conditioned on a determination by the SEC after proper notice and hearing that the level of broker shareholdings adversely affects PSE's ability to operate in the public interest. The CA affirmed the RTC. In November 2023, the SEC reported that broker shareholdings had complied with the 20% limit from January to September 2023, while PASBDI maintained that the case was moot but still sought affirmance of the CA decisions.

• Jurisdiction: The SEC argued that while PASBDI filed a petition for injunction, the allegations therein actually sought exemption from the voting rights restriction, which falls within the sole authority of the SEC under Section 33.2(c) of RA 8799, not the RTC.
• Validity of the 20% Limit: The SEC maintained that the restriction imposed by Section 33.2(c) is a valid exercise of police power, and the proprietary rights of stockholders must yield to the State's exercise thereof. The enforcement of RA 8799 cannot amount to confiscation of property, given that Section 33.2(c) remains valid and effective and was never assailed by PASBDI.
• No Application for Exemption: The SEC pointed out that PASBDI never filed an application for exemptive relief, unlike the institutional stockholders that were granted such relief. The burden of proving that ownership beyond 20% does not negatively impact public interest rests on the applicants, not the SEC.
• No Right to Injunction: The SEC contended that PASBDI has no right that needs to be protected by an injunctive writ, since the restriction is a valid exercise of police power, and the issuance of the writs by the RTC constitutes grave abuse of discretion.

• RTC Jurisdiction: PASBDI argued that the RTC had jurisdiction because the petition challenged the validity of the SEC's Order and the NOMELEC Rules, which constitute a deprivation of property rights. Invoking British American Tobacco vs. Sec. Camacho, PASBDI maintained that where the validity or constitutionality of a rule or regulation issued by an administrative agency in the performance of its quasi-legislative function is assailed, the regular courts have jurisdiction.
• No Negative Impact Shown: PASBDI construed the exception in Section 33.2(c) to mean that the SEC may only impose the 20% restriction if such ownership would negatively impact the exchange's ability to operate in the public interest. No allegations or showing of such negative impact were made, justifying the injunction.
• PSE Admitted Lack of Authority: PASBDI pointed out that the PSE and NOMELEC explicitly admitted they do not have the power to unduly interfere with, curtail, restrict, or limit the property rights of shareholders, particularly the right to fully vote shares. The PSE acted outside its province in issuing the 2010 and 2011 rules.
• Mootness but Affirmance Sought: PASBDI acknowledged that the case may be moot given that broker voting rights had been reduced to less than 20%, but still sought affirmance of the CA decisions, as the case involves property rights protected by the Constitution.
• No Irreparable Damage to SEC: The PSE and NOMELEC asserted that the SEC failed to show that irreparable damage had inured or would inure to it to justify denial of the injunction.

• RTC Jurisdiction: Whether the RTC has jurisdiction to hear and decide the petition for injunction filed by PASBDI and the individual respondents, which assails the validity of rules issued by the SEC in the exercise of its quasi-legislative functions.
• Propriety of Injunction Against SEC: Whether the RTC committed grave abuse of discretion in issuing the writ of preliminary injunction against the SEC, and subsequently declaring the same permanent.
• Propriety of Injunction Against PSE and NOMELEC: Whether the RTC committed grave abuse of discretion in issuing the writ of preliminary injunction against the PSE and NOMELEC for the 2010 and 2011 NOMELEC Rules.

• RTC Jurisdiction: Yes. The RTC has jurisdiction over petitions assailing the validity or constitutionality of rules or regulations issued by administrative agencies in the exercise of quasi-legislative functions, as distinguished from quasi-judicial adjudications which fall under the CA's jurisdiction via Rule 43.
• Propriety of Injunction Against SEC: No — the RTC gravely abused its discretion. The SEC's directives faithfully tracked the language of Section 33.2(c) of RA 8799, which enjoys the presumption of constitutionality and was never directly attacked; an injunction against enforcing a valid statute constitutes a collateral attack, which is proscribed.
• Propriety of Injunction Against PSE (2010 Rules): No — the RTC did not gravely abuse its discretion. The PSE's 2010 NOMELEC Rules deviated from the statutory language by limiting brokers' voting rights to 20% of their total shareholdings rather than 20% of the total outstanding capital stock, violating the brokers' right in esse to vote their shares subject to the statutory limit.
• Propriety of Injunction Against PSE (2011 Rules): Yes — the RTC gravely abused its discretion. The 2011 NOMELEC Rules correctly tracked the SEC's directive and the statutory language, imposing no improper restriction on the brokers' voting rights.

• RTC Jurisdiction: Administrative agencies possess both quasi-legislative (rule-making) and quasi-judicial (adjudicatory) powers. Where what is assailed is the validity or constitutionality of a rule or regulation issued in the performance of quasi-legislative functions, regular courts have jurisdiction to pass upon the same, as held in British American Tobacco vs. Sec. Camacho and Smart Communications, Inc. vs. Nat'l Telecommunications Commission. The Constitution vests the power of judicial review in the courts, including the RTC. In contrast, appeals from judgments and final orders of the SEC in the exercise of its quasi-judicial functions fall under the CA's jurisdiction via Rule 43. Here, the petition before the RTC assailed the validity of the SEC's directive to PSE to impose the 20% limitation — essentially questioning the validity of a rule issued in the performance of quasi-legislative functions. Jurisdiction is determined by the allegations in the complaint and the character of the relief sought, not by the SEC's characterization of the action as one seeking exemption. While the SEC retains authority to grant exemptive relief under Section 33.2(c), courts are not precluded from reviewing whether such power is exercised within the metes and bounds of the law.

• Propriety of Injunction Against SEC: A writ of preliminary injunction requires (1) a prima facie right to be protected and (2) acts violative of that right. The SEC, as the agency entrusted to administer RA 8799, committed no error in issuing Resolution No. 86 and its February 3, 2011 Order, as these faithfully tracked the exact wording of Section 33.2(c). The provision limits the voting rights of industry or business groups — not individual shareholdings — to 20% of the total outstanding capital stock. The congressional deliberations reveal the intent to prevent abuses by entrenched brokers and to decentralize control of the PSE. Section 33.2(c) enjoys the presumption of constitutionality, which can be overcome only by the clearest showing of a constitutional infraction. PASBDI never directly attacked the constitutionality of Section 33.2(c); instead, it filed an injunction to enjoin its enforcement — a collateral attack that is proscribed. Without a clear violation of the respondents' rights, the RTC gravely abused its discretion in enjoining the SEC.

• Propriety of Injunction Against PSE (2010 Rules): The PSE's 2010 NOMELEC Rules deviated from the statutory language. While the SEC directed that the voting rights of brokers as an industry group be limited to 20% of the total outstanding capital stock of the PSE, the PSE's Rule 2 stated that "the voting rights of brokers shall be limited to 20% of their total shareholdings." This formulation improperly limited each broker to voting only 20% of their respective shares, regardless of whether the industry group as a whole remained within the 20% ceiling of the total outstanding capital stock. Such a narrowly drawn interpretation finds no legal mooring and violates the brokers' right in esse — the right to vote their shares subject to the statutory limit. The right to vote is a property right inherent in the ownership of corporate stock, recognized under Section 23 of the Revised Corporation Code. The PSE's restriction was ultra vires for effectively diluting the brokers' ownership, management, and control even if their voting rights complied with Section 33.2(c). Given the clear right violated, no grave abuse of discretion can be imputed to the RTC in issuing the injunction against PSE for the 2010 rules.

• Propriety of Injunction Against PSE (2011 Rules): Unlike the 2010 rules, the 2011 NOMELEC Rules incorporated in toto the SEC's directive, stating that "the voting rights of brokers shall be limited to twenty percent (20%) of the total outstanding stock of the PSE." This language is consistent with Section 33.2(c), which limits the industry group to 20% of the total outstanding capital stock. Having correctly tracked the statutory language, the PSE and NOMELEC committed no error in implementing the same. No rights were infringed, and the grant of injunctive relief was improper. The RTC had no basis to grant the writ for the 2011 rules, much less to declare it permanent.

• Quasi-legislative vs. Quasi-judicial Functions of Administrative Agencies — Administrative agencies possess quasi-legislative (rule-making) powers and quasi-judicial (adjudicatory) powers. Quasi-legislative power is the power to make rules and regulations resulting in delegated legislation within the confines of the granting statute. Where the validity or constitutionality of a rule or regulation issued in the exercise of quasi-legislative functions is assailed, regular courts (including the RTC) have jurisdiction. In contrast, appeals from judgments or final orders of quasi-judicial agencies in the exercise of their quasi-judicial functions fall under the CA's jurisdiction via Rule 43 of the Rules of Court. The Court applied this distinction to hold that the RTC properly took cognizance of PASBDI's petition, which assailed the validity of the SEC's directive — a quasi-legislative act — rather than seeking review of a quasi-judicial adjudication.

• Presumption of Constitutionality and Prohibition on Collateral Attack — Every statute enjoys the presumption of validity, which can be overcome only by the clearest showing of a constitutional infraction. A law may not be collaterally attacked through an injunction; its enforcement may only be enjoined if it is directly challenged and shown to be unconstitutional. The Court applied this doctrine to hold that PASBDI's attempt to enjoin the SEC from enforcing Section 33.2(c) — without directly assailing the provision's constitutionality — constituted an impermissible collateral attack. The presumption of validity thus stands, and the SEC's directives faithfully tracking the statute cannot be enjoined.

• Right in Esse for Preliminary Injunction — A writ of preliminary injunction requires (1) a prima facie right to be protected and (2) acts violative of that right. A right in esse is a clear and unmistakable right founded on or granted by law. The Court applied this doctrine to hold that the brokers had a right in esse to vote their shares subject to the statutory 20% industry group limit, and the PSE's 2010 rule — which deviated from the statutory language by limiting each broker to 20% of their own shareholdings — violated that right, justifying the injunction against PSE.

• Stockholder's Voting Right as Property Right — The right to vote is a right inherent in and incidental to the ownership of corporate stock and is a property right. A stockholder cannot be deprived of the right to vote their stock nor may the right be essentially impaired without their consent. The Court applied this doctrine, citing Section 23 of the Revised Corporation Code, to hold that the PSE's 2010 rule improperly diluted the brokers' property rights by restricting their individual voting rights beyond what the statute required.

• Moot and Academic; Exception of Capable of Repetition Yet Evading Review — Courts generally stay their hand from resolving cases rendered moot by supervening events, but may assume jurisdiction when the issue is capable of repetition yet evading review. The Court applied this exception, noting that the nine-month period of compliance in 2023 was too narrow, with no evidence of compliance from 2012 to 2022 and no guarantee that broker shareholdings would remain compliant given continuous trading on the PSE.

• "The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts." — This passage, quoted from British American Tobacco vs. Sec. Camacho, articulates the foundational principle distinguishing judicial review of quasi-legislative acts from quasi-judicial adjudications, establishing the RTC's jurisdiction over the petition.

• "A collateral attack on a presumably valid law is not permissible. Unless a law or rule is annulled in a direct proceeding, the legal presumption of its validity stands." — This passage, quoted from Vivas vs. The Monetary Board of the Bangko Sentral ng Pilipinas, states the rule prohibiting collateral attacks on statutes and underpins the Court's conclusion that the RTC gravely abused its discretion in enjoining the SEC without a direct constitutional challenge to Section 33.2(c).

• "[T]he limitation under Section 33.2(c) makes no qualification as to the voting rights of industry groups; thus, it seems to permit brokers to vote with their entire shareholdings so long as it does not go beyond the 20% threshold for industry groups, of the total outstanding capital stock of the PSE." — This passage articulates the critical distinction between the statutory limit (20% of the total outstanding capital stock as an industry group) and the PSE's erroneous 2010 formulation (20% of each broker's individual shareholdings), which formed the basis for sustaining the injunction against PSE for 2010 while reversing it for 2011.

• "One of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised through [their] vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock, and as such, and such is a property right." — This passage defines the nature of the stockholder's voting right as a property right, grounding the conclusion that the PSE's 2010 rule violated the brokers' right in esse.

• British American Tobacco vs. Sec. Camacho, 584 Phil. 489 (2008) — Controlling precedent followed. Held that the RTC has jurisdiction to determine whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution, establishing the principle that challenges to quasi-legislative acts fall within the regular courts' jurisdiction.
• Smart Communications, Inc. vs. Nat'l Telecommunications Commission, 456 Phil. 145 (2003) — Followed. Held that where the validity or constitutionality of a rule or regulation issued by an administrative agency in the performance of its quasi-legislative function is assailed, the regular courts have jurisdiction.
• Holy Spirit Homeowners Association, Inc. vs. Sec. Defensor, 529 Phil. 573 (2006) — Cited for the definition and distinction between quasi-legislative (rule-making) and quasi-judicial (adjudicatory) powers of administrative agencies.
• De Guzman-Fuerte vs. Sps. Estomo, 830 Phil. 653 (2018) — Followed. Held that jurisdiction over the subject matter is determined by the allegations in the complaint and the character of the relief sought, irrespective of whether the plaintiff is entitled to recover.
• Los Baños Rural Bank, Inc. vs. Africa, 433 Phil. 930 (2002) — Followed. Defined the requisites for issuance of a writ of preliminary injunction: a prima facie right to be protected and acts violative of that right.
• Lim vs. BPI Agricultural Development Bank, 628 Phil. 601 (2010) — Followed. Defined a right in esse as a clear and unmistakable right to be protected, founded on or granted by law.
• Lawyers Against Monopoly and Poverty (LAMP) vs. The Secretary of Budget and Management, 686 Phil. 357 (2012) — Followed. Held that to justify nullification of a law, there must be a clear and unequivocal breach of the Constitution; the presumption of constitutionality can be overcome only by the clearest showing of infraction.
• Vivas vs. The Monetary Board of the Bangko Sentral ng Pilipinas, 716 Phil. 132 (2013) — Followed. Held that a collateral attack on a presumably valid law is not permissible; unless a law is annulled in a direct proceeding, the presumption of validity stands.
• Fabian vs. Hon. Desierto, 356 Phil. 787 (1998) — Cited for the proposition that Rule 43 was formulated to provide a uniform rule of appellate procedure for quasi-judicial agencies, including the SEC.

• Section 33.2(c), Republic Act No. 8799 (Securities Regulation Code) — Provides that no industry or business group may beneficially own or control more than 20% of the voting rights of a stock exchange organized as a stock corporation, with the SEC empowered to grant exemptions upon application where it finds that such ownership will not negatively impact the exchange's ability to operate in the public interest. Applied as the statutory basis for the SEC's directives to the PSE and the central provision whose proper interpretation the Court clarified: the 20% limit applies to the industry group as a whole relative to the total outstanding capital stock, not to each broker's individual shareholdings.
• Section 4, Republic Act No. 8799 — Mandates the SEC to administer the Code as a collegial body composed of a Chairperson and four Commissioners. Applied to establish the SEC's status as the primary administrative agency entrusted with administering RA 8799.
• Section 5, Republic Act No. 8799 — Enumerates the SEC's powers and functions, including quasi-judicial powers such as jurisdiction over corporations, authority to impose sanctions, issue cease and desist orders, and punish for contempt. Applied to distinguish the SEC's quasi-judicial functions (appeals from which go to the CA via Rule 43) from its quasi-legislative functions.
• Section 72.1, Republic Act No. 8799 — Authorizes the SEC to issue, amend, and rescind rules and regulations necessary to effectuate the Code, and to conditionally or unconditionally exempt any person, security, or transaction from any or all provisions of the Code. Applied to corroborate the SEC's authority to grant exemptive relief, while clarifying that courts may still review whether such power is exercised within the bounds of the law.
• Section 23, Revised Corporation Code — Provides that stockholders entitled to vote shall have the right to vote the number of shares standing in their own names in the stock books. Applied to support the brokers' property right to vote their shares subject to the statutory limit under Section 33.2(c).
• Rule 58, Section 3, Revised Rules on Civil Procedure — Sets forth the grounds for issuance of a preliminary injunction: entitlement to the relief demanded, probability of injustice during litigation, and acts probably in violation of the applicant's rights. Applied as the procedural framework for evaluating the propriety of the RTC's injunction.
• Rule 43, Section 1, Rules of Court — Provides that appeals from judgments or final orders of quasi-judicial agencies, including the SEC, in the exercise of quasi-judicial functions shall be brought to the CA. Applied to distinguish the proper appellate route for quasi-judicial adjudications from the RTC's jurisdiction over quasi-legislative challenges.

Gesmundo, C.J., Leonen, SAJ., Caguioa, Lazaro-Javier, Inting, Zalameda, Gaerlan, Rosario, Dimaampao, Marquez, Kho, Jr., and Singh, JJ., concurred. Hernando, J., filed a concurring opinion (not reproduced in the provided text). M. Lopez, J., took no part.