SEC vs. CA, OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HINGG.R. No. 18770; October 22, 2014SERENO, CJ:

Doctrine:
The power of the SEC to regulate proxies remains in place in instances when
stockholders vote on matters other than the election of directors. The test is whether the
controversy relates to such election. All matters affecting the manner and conduct of the
election of directors are properly cognizable by the regular courts. Otherwise, these
matters may be brought before the SEC for resolution based on the regulatory powers it
exercises over corporations, partnerships and associations.

​Facts:
Omico Corporation is a company listed and traded in the Philippine Stock Exchange.
Astra Securities Corporation is one of Omico's stockholders. Omico scheduled its annual
stockholders' meeting and set the deadline for submission of proxies. Astra objected to
the validation of proxies issued in favor of Tommy Kin Hing Tia, representing a significant
percentage of Omico's outstanding capital stock. Astra argued that the proxy issuers did
not obtain the required express written authorization from their clients, violating SRC Rule
20 (11) (b) (xviii) of the Securities Regulation Code (SRC). Astra also objected to the
inclusion of proxies issued in favor of Tia and/or Martin Buncio, as it exceeded the limit
set by SRC Rule 20 (2) (B) (ii) (b). Despite Astra's objections, Omico's Board of Inspectors
declared the proxies issued in favor of Tia as valid. Astra filed a complaint before the
SEC, seeking the invalidation of the proxies and the issuance of a cease and desist order
(CDO) to halt the stockholders' meeting. The SEC issued the CDO, but it failed to be
served on the scheduled meeting date. Astra filed a complaint for indirect contempt
against Omico before the SEC. Omico filed a petition for certiorari and prohibition before
the Court of Appeals (CA), challenging the SEC's jurisdiction. The CA declared the CDO
null and void, ruling that the controversy was an intra-corporate dispute and should be
resolved by the regular courts. The SEC filed a petition for certiorari before the Supreme
Court (SC), arguing that it has jurisdiction over controversies arising from the validation
of proxies. Astra also filed a petition for review on certiorari, seeking the reversal of the
CA's decision. The SC consolidated the two petitions.

​Issue:
Whether the Securities and Exchange Commission (SEC) has jurisdiction over
controversies arising from the validation of proxies for the election of directors.

Ruling:
The SEC does not have jurisdiction over controversies arising from the validation of
proxies for the election of directors. Such controversies should be resolved by the regular
courts, which have the original and exclusive jurisdiction over election contests or
controversies in the election of corporate directors. The SC cited Section 5(c) of Presidential
Decree No. 902-A, in relation to the SRC, which specifically limits the jurisdiction of regular trial
courts to controversies in the election or appointment of directors, trustees, officers, or managers
of corporations, partnerships, or association. Under Section 5(c) of Presidential Decree No. 902-
A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election related
controversies is specifically confined to "controversies in the election or appointment of directors,
trustees, officers or managers of corporations, partnerships, or associations." Evidently, the
jurisdiction of the regular courts over so-called election contests or controversies under Section 5
(c) does not extend to every potential subject that may be voted on by shareholders, but only to
the election of directors or trustees, in which stockholders are authorized to participate under
Section 24 of the Corporation Code.
This qualification allows for a useful distinction that gives due effect to the statutory right
of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regular courts
over election contests or controversies. The power of the SEC to investigate violations of
its rules on proxy solicitation is unquestioned when proxies are obtained to vote on
matters unrelated to the cases enumerated under Section 5 of Presidential Decree No.
902-A. However, when proxies are solicited in relation to the election of corporate
directors, the resulting controversy, even if it ostensibly raised the violation of the SEC
rules on proxy solicitation, should be properly seen as an election controversy within the
original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5 (c) of Presidential Decree No. 902-A.

The SC found no merit either in the proposal of Astra regarding the "two (2) viable, non-
exclusive and successive legal remedies to question the validity of proxies." It suggests

that the power to pass upon the validity of proxies to determine the existence of a quorum
prior to the conduct of the stockholders’ meeting should lie with the SEC; but, after the
stockholders’ meeting, questions regarding the use of invalid proxies in the election of
directors should be cognizable by the regular courts, since there was already an election
to speak of.