Baviera v. Paglinawan, et al., G.R. No.

168380, February 8,
2007
Post under case digests, Commercial Law at Thursday, January 26, 2012 Posted by Schizophrenic Mind

Facts: SCB acted as a stock broker, soliciting from local residents foreign securities
called GTPMF. These securities were not registered with the SEC and were then
remitted outwardly to SCB-Hong Kong and SCB-Singapore. The Investment Capital
Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB
violated the Revised Securities Act, particularly the provision prohibiting the selling of
securities without priorregistration with the SEC; and that its actions are potentially
damaging to the local mutual fund industry. Notwithstanding the BSP directive, SCB
continued to offer and sell GTPMF securities in this country. Petitioner learned that the
SCB had been prohibited by the BSP to sell GPTMF securities. Petitioner filed with the
DOJ a complaint for violation of Section 8.1 of the Securities Regulation Code against
private respondents but was denied holding that it should have been filed with the SEC.

Issue: Whether the SEC has jurisdiction over the case.

Held: Yes. 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.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 168380

February 8, 2007

MANUEL V. BAVIERA, Petitioner,

vs.
ESPERANZA PAGLINAWAN, in her capacity as Department of Justice State Prosecutor;
LEAH C. TANODRA-ARMAMENTO, In her capacity as Assistant Chief State Prosecutor and
Chairwoman of Task Force on Business Scam; JOVENCITO R. ZUNO, in his capacity as
Department of Justice Chief State Prosecutor; STANDARD CHARTERED BANK, PAUL SIMON
MORRIS, AJAY KANWAL, SRIDHAR RAMAN, MARIVEL GONZALES, CHONA REYES, MARIA
ELLEN VICTOR, and ZENAIDA IGLESIAS, Respondents.
x-----------------------------x
G.R. No. 170602

February 8, 2007

MANUEL V. BAVIERA, Petitioner,

vs.
STANDARD CHARTERED BANK, BRYAN K. SANDERSON, THE RIGHT HONORABLE LORD
STEWARTBY, EVAN MERVYN DAVIES, MICHAEL BERNARD DENOMA, CHRISTOPHER
AVEDIS KELJIK, RICHARD HENRY MEDDINGS, KAI NARGOLWALA, PETER ALEXANDER
SANDS, RONNIE CHI CHUNG CHAN, SIR CK CHOW, BARRY CLARE, HO KWON PING,
RUDOLPH HAROLD PETER ARKHAM, DAVID GEORGE MOIR, HIGH EDWARD NORTON, SIR
RALPH HARRY ROBINS, ANTHONY WILLIAM PAUL STENHAM (Standard Chartered Bank
Chairman, Deputy Chairman, and Members of the Board), SHERAZAM MAZARI (Group
Regional Head for Consumer Banking), PAUL SIMON MORRIS, AJAY KANWAL, SRIDHAR
RAMAN, MARIVEL GONZALES, CHONA REYES, ELLEN VICTOR, RAMONA H. BERNAD,
DOMINGO CARBONELL, JR., and ZENAIDA IGLESIAS (Standard Chartered Bank-Philippines
Branch Heads/Officers), Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us are two consolidated Petitions for Review on Certiorari assailing the Decisions of the
Court of Appeals in CA-G.R. SP No. 873281 and in CA-G.R. SP No. 85078.2
The common factual antecedents of these cases as shown by the records are:
Manuel Baviera, petitioner in these cases, was the former head of the HR Service Delivery and
Industrial Relations of Standard Chartered Bank-Philippines (SCB), one of herein respondents. SCB
is a foreign banking corporation duly licensed to engage in banking, trust, and other fiduciary
business in the Philippines. Pursuant to Resolution No. 1142 dated December 3, 1992 of the
Monetary Board of the Bangko Sentral ng Pilipinas (BSP), the conduct of SCBs business in this
jurisdiction is subject to the following conditions:

1. At the end of a one-year period from the date the SCB starts its trust functions, at least
25% of its trust accounts must be for the account of non-residents of the Philippines and that
actual foreign exchange had been remitted into the Philippines to fund such accounts or that
the establishment of such accounts had reduced the indebtedness of residents (individuals
or corporations or government agencies) of the Philippines to non-residents. At the end of
the second year, the above ratio shall be 50%, which ratio must be observed continuously
thereafter;
2. The trust operations of SCB shall be subject to all existing laws, rules and regulations
applicable to trust services, particularly the creation of a Trust Committee; and
3. The bank shall inform the appropriate supervising and examining department of the BSP
at the start of its operations.
Apparently, SCB did not comply with the above conditions. Instead, as early as 1996, it acted as a
stock broker, soliciting from local residents foreign securities called "GLOBAL THIRD PARTY
MUTUAL FUNDS" (GTPMF), denominated in US dollars. These securities were not registered with
the Securities and Exchange Commission (SEC). These were then remitted outwardly to SCB-Hong
Kong and SCB-Singapore.
SCBs counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, advised the
bank to proceed with the selling of the foreign securities although unregistered with the SEC, under
the guise of a "custodianship agreement;" and should it be questioned, it shall invoke Section 723 of
the General Banking Act (Republic Act No.337).4 In sum, SCB was able to sell GTPMF securities
worth around P6 billion to some 645 investors.
However, SCBs operations did not remain unchallenged. On July 18, 1997, the Investment Capital
Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the
Revised Securities Act,5particularly the provision prohibiting the selling of securities without prior
registration with the SEC; and that its actions are potentially damaging to the local mutual fund
industry.
In its answer, SCB denied offering and selling securities, contending that it has been performing a
"purely informational function" without solicitations for any of its investment outlets abroad; that it has
a trust license and the services it renders under the "Custodianship Agreement" for offshore
investments are authorized by Section 726 of the General Banking Act; that its clients were the ones
who took the initiative to invest in securities; and it has been acting merely as an agent or "passive
order taker" for them.
On September 2, 1997, the SEC issued a Cease and Desist Order against SCB, holding that its
services violated Sections 4(a)7 and 198 of the Revised Securities Act.
Meantime, the SEC indorsed ICAPs complaint and its supporting documents to the BSP.
On October 31, 1997, the SEC informed the Secretary of Finance that it withdrew GTPMF securities
from the market and that it will not sell the same without the necessary clearances from the
regulatory authorities.
Meanwhile, on August 17, 1998, the BSP directed SCB not to include investments in global mutual
funds issued abroad in its trust investments portfolio without prior registration with the SEC.

On August 31, 1998, SCB sent a letter to the BSP confirming that it will withdraw third-party fund
products which could be directly purchased by investors.
However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell
GTPMF securities in this country. This prompted petitioner to enter into an Investment Trust
Agreement with SCB wherein he purchased US$8,000.00 worth of securities upon the banks
promise of 40% return on his investment and a guarantee that his money is safe. After six (6)
months, however, petitioner learned that the value of his investment went down to US$7,000.00. He
tried to withdraw his investment but was persuaded by Antonette de los Reyes of SCB to hold on to
it for another six (6) months in view of the possibility that the market would pick up.
Meanwhile, on November 27, 2000, the BSP found that SCB failed to comply with its directive of
August 17, 1998. Consequently, it was fined in the amount of P30,000.00.
The trend in the securities market, however, was bearish and the worth of petitioners investment
went down further to only US$3,000.00.
On October 26, 2001, petitioner learned from Marivel Gonzales, head of the SCB Legal and
Compliance Department, that the latter had been prohibited by the BSP to sell GPTMF securities.
Petitioner then filed with the BSP a letter-complaint demanding compensation for his lost investment.
But SCB denied his demand on the ground that his investment is "regular."
On July 15, 2003, petitioner filed with the Department of Justice (DOJ), represented herein by its
prosecutors, public respondents, a complaint charging the above-named officers and members of
the SCB Board of Directors and other SCB officials, private respondents, with
syndicated estafa, docketed as I.S. No. 2003-1059.
For their part, private respondents filed the following as counter-charges against petitioner: (1)
blackmail and extortion, docketed as I.S. No. 2003-1059-A; and blackmail and perjury, docketed as
I.S. No. 2003-1278.
On September 29, 2003, petitioner also filed a complaint for perjury against private respondents
Paul Simon Morris and Marivel Gonzales, docketed as I.S. No. 2003-1278-A.
On December 4, 2003, the SEC issued a Cease and Desist Order against SCB restraining it from
further offering, soliciting, or otherwise selling its securities to the public until these have been
registered with the SEC.
Subsequently, the SEC and SCB reached an amicable settlement.

1aw phi1.net

On January 20, 2004, the SEC lifted its Cease and Desist Order and approved the P7 million
settlement offered by SCB. Thereupon, SCB made a commitment not to offer or sell securities
without prior compliance with the requirements of the SEC.
On February 7, 2004, petitioner filed with the DOJ a complaint for violation of Section 8.19 of the
Securities Regulation Code against private respondents, docketed as I.S. No. 2004-229.
On February 23, 2004, the DOJ rendered its Joint Resolution10 dismissing petitioners complaint for
syndicated estafa in I.S. No. 2003-1059; private respondents complaint for blackmail and extortion
in I.S. No. 2003-1059-A; private respondents complaint for blackmail and perjury in I.S. No. 2003-

1278; and petitioners complaint for perjury against private respondents Morris and Gonzales in I.S.
No. 2003-1278-A.
Meanwhile, in a Resolution11 dated April 4, 2004, the DOJ dismissed petitioners complaint in I.S. No.
2004-229 (violation of Securities Regulation Code), holding that it should have been filed with the
SEC.
Petitioners motions to dismiss his complaints were denied by the DOJ. Thus, he filed with the Court
of Appeals a petition for certiorari, docketed as CA-G.R. SP No. 85078. He alleged that the DOJ
acted with grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing his
complaint for syndicated estafa.
He also filed with the Court of Appeals a separate petition for certiorari assailing the DOJ Resolution
dismissing I.S. No. 2004-229 for violation of the Securities Regulation Code. This petition was
docketed as CA-G.R. SP No. 87328. Petitioner claimed that the DOJ acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in holding that the complaint should have been
filed with the SEC.
On January 7, 2005, the Court of Appeals promulgated its Decision dismissing the petition. It
sustained the ruling of the DOJ that the case should have been filed initially with the SEC.
1avvphi1.net

Petitioner filed a motion for reconsideration but it was denied in a Resolution dated May 27, 2005.
Meanwhile, on February 21, 2005, the Court of Appeals rendered its Decision in CA-G.R. SP No.
85078 (involving petitioners charges and respondents counter charges) dismissing the petition on
the ground that the purpose of a petition for certiorari is not to evaluate and weigh the parties
evidence but to determine whether the assailed Resolution of the DOJ was issued with grave abuse
of discretion tantamount to lack of jurisdiction. Again, petitioner moved for a reconsideration but it
was denied in a Resolution of November 22, 2005.
Hence, the instant petitions for review on certiorari.
For our resolution is the fundamental issue of whether the Court of Appeals erred in concluding that
the DOJ did not commit grave abuse of discretion in dismissing petitioners complaint in I.S. 2004229 for violation of Securities Regulation Code and his complaint in I.S. No. 2003-1059 for
syndicated estafa.
G.R. No 168380
Re: I.S. No. 2004-229
For violation of the Securities Regulation Code
Section 53.1 of the Securities Regulation Code provides:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses.
53. 1. The Commission may, in its discretion, make such investigation as it deems necessary to
determine whether any person has violated or is about to violate any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange, registered securities association,
clearing agency, other self-regulatory organization, and may require or permit any person to file with

it a statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts
and circumstances concerning the matter to be investigated. The Commission may publish
information concerning any such violations and to investigate any fact, condition, practice or matter
which it may deem necessary or proper to aid in the enforcement of the provisions of this Code, in
the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for
recommending further legislation concerning the matters to which this Code relates: Provided,
however, That any person requested or subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of the purpose of such
investigation: Provided, further, That all criminal complaints for violations of this Code and the
implementing rules and regulations enforced or administered by the Commission shall be
referred to the Department of Justice for preliminary investigation and prosecution before the
proper court: Provided, furthermore, That in instances where the law allows independent civil or
criminal proceedings of violations arising from the act, the Commission shall take appropriate action
to implement the same: Provided, finally; That the investigation, prosecution, and trial of such cases
shall be given priority.
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.12 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 petitioners complaint.
G.R. No. 170602
Re: I.S. No. 2003-1059 for
Syndicated Estafa
Section 5, Rule 110 of the 2000 Rules of Criminal Procedure, as amended, provides that all criminal
actions, commenced by either a complaint or an information, shall be prosecuted under the direction
and control of a public prosecutor. This mandate is founded on the theory that a crime is a breach of
the security and peace of the people at large, an outrage against the very sovereignty of the State. It
follows that a representative of the State shall direct and control the prosecution of the
offense.13 This representative of the State is the public prosecutor, whom this Court described in the
old case of Suarez v. Platon,14 as:

[T]he representative not of an ordinary party to a controversy, but of a sovereignty whose obligation
to govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore,
in a criminal prosecution is not that it shall win a case, but that justice shall be done. As such, he is
in a peculiar and very definite sense a servant of the law, the twofold aim of which is that guilt shall
not escape or innocence suffers.
Concomitant with his authority and power to control the prosecution of criminal offenses, the public
prosecutor is vested with the discretionary power to determine whether a prima facie case exists or
not.15 This is done through a preliminary investigation designed to secure the respondent from hasty,
malicious and oppressive prosecution. A preliminary investigation is essentially an inquiry to
determine whether (a) a crime has been committed; and (b) whether there is probable cause that the
accused is guilty thereof.16 In Pontejos v. Office of the Ombudsman,17probable cause is defined as
such facts and circumstances that would engender a well-founded belief that a crime has been
committed and that the respondent is probably guilty thereof and should be held for trial. It is the
public prosecutor who determines during the preliminary investigation whether probable cause
exists. Thus, the decision whether or not to dismiss the criminal complaint against the accused
depends on the sound discretion of the prosecutor.
Given this latitude and authority granted by law to the investigating prosecutor, the rule in this
jurisdiction is that courts will not interfere with the conduct of preliminary investigations or
reinvestigations or in the determination of what constitutes sufficient probable cause for the
filing of the corresponding information against an offender.18 Courts are not empowered to
substitute their own judgment for that of the executive branch.19 Differently stated, as the matter of
whether to prosecute or not is purely discretionary on his part, courts cannot compel a public
prosecutor to file the corresponding information, upon a complaint, where he finds the evidence
before him insufficient to warrant the filing of an action in court. In sum, the prosecutors findings
on the existence of probable cause are not subject to review by the courts, unless these are
patently shown to have been made with grave abuse of discretion.20
Grave abuse of discretion is such capricious and whimsical exercise of judgment on the part of the
public officer concerned which is equivalent to an excess or lack of jurisdiction. The abuse of
discretion must be as patent and gross as to amount to an evasion of a positive duty or a virtual
refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power
is exercised in an arbitrary and despotic manner by reason of passion or hostility.21
In determining whether the DOJ committed grave abuse of discretion, it is expedient to know if
the findings of fact of herein public prosecutors were reached in an arbitrary or despotic manner.
The Court of Appeals held that petitioners evidence is insufficient to establish probable cause for
syndicatedestafa. There is no showing from the record that private respondents herein did induce
petitioner by false representations to invest in the GTPMF securities. Nor did they act as a syndicate
to misappropriate his money for their own benefit. Rather, they invested it in accordance with his
written instructions. That he lost his investment is not their fault since it was highly speculative.
Records show that public respondents examined petitioners evidence with care, well aware of their
duty to prevent material damage to his constitutional right to liberty and fair play.
In Suarez previously cited, this Court made it clear that a public prosecutors duty is two-fold. On one
hand, he is bound by his oath of office to prosecute persons where the complainants evidence is
ample and sufficient to show prima facie guilt of a crime. Yet, on the other hand, he is likewise dutybound to protect innocent persons from groundless, false, or malicious prosecution.22

Hence, we hold that the Court of Appeals was correct in dismissing the petition for review against
private respondents and in concluding that the DOJ did not act with grave abuse of discretion
tantamount to lack or excess of jurisdiction.
On petitioners complaint for violation of the Securities Regulation Code, suffice it to state that, as
aptly declared by the Court of Appeals, he should have filed it with the SEC, not the DOJ. Again,
there is no indication here that in dismissing petitioners complaint, the DOJ acted capriciously or
arbitrarily.
WHEREFORE, we DENY the petitions and AFFIRM the assailed Decisions of the Court of Appeals
in CA-G.R. SP No. 87328 and in CA-G.R. SP No. 85078.
Costs against petitioner.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
(On leave)
RENATO C. CORONA
Associate Justice

ADOLFO S. AZCUNA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice

CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Rollo, G.R. No. 168380, Vol. I, pp. 48-62. Penned by Associate Justice Remedios A.
Salazar-Fernando and concurred in by Associate Justice Rosemarie D. Carandang and
Associate Justice Monina Arevalo-Zenarosa.

Id., G.R. No. 170602, Vol. I, pp. 63-73. Written by Associate Justice Juan Q. Enriquez, Jr.,
with Associate Justice Portia Alio-Hormachuelos and Associate Justice Vicente Q. Roxas,
concurring.
3

SEC.72. In addition to the operations specifically authorized elsewhere in this Act, banking
institutions other than building and loan associations may perform the following services:
a) Receive in custody funds, documents and valuable objects, and rent safety
deposit boxes for the safeguarding of such effects;
b) Act as financial agent and buy and sell, by order of and for the account of their
customers, shares, evidences of indebtedness and all other types of securities;
c) Make collections and payments for the account of others and perform such other
services for their customers as are not incompatible with banking business;
d) Upon prior approval of the Monetary Board, act as managing agent, adviser,
consultant or administrator of investment management advisory/consultancy
accounts.
The banks shall perform the services permitted under subsections (a), (b), and (c) of
this section as depositaries or as agents. Accordingly they shall keep the funds,
securities and other effects which they thus receive duly separated and apart from
the banks own assets and liabilities.
The Monetary Board may regulate the operations authorized by this section in order
to insure that said operations do not endanger the interest of the depositors and
other creditors of the banks.
4

Now repealed by The General Banking Law of 2000 (Republic Act No. 8791).

Batas Pambansa Blg. 178. Now repealed by Republic Act No. 8799 (The Securities
Regulation Code), which took effect on July 19. 2000.
6

Supra at footnote 3.

SEC. 4. Requirement of registration of securities. (a) No securities, except of a class

exempt under any of the provisions of Section five hereof or unless sold in any transaction
exempt under any of the provisions of Section six hereof shall be sold or offered for sale or
distribution to the public within the Philippines unless such securities shall have been
registered and permitted to be sold as hereinafter provided.
7

SEC. 19. Registration of brokers, dealers and salesmen.- No broker, dealer or salesman
shall engage in business in the Philippines as such broker, dealer or salesman or sell any
securities, including securities exempted under this Act, except in exempt transactions,
unless he has been registered as a broker, dealer, or salesman pursuant to the provisions of
this Section.
9

Sec. 8. Requirement of Registration of Securities:

8.1. Securities shall not be sold or offered for sale or distribution within the
Philippines, without a registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with
such substance as the Commission may prescribe, shall be made available to each
prospective purchaser.
10

Vol. I, Rollo, G.R. No. 170602, pp. 451-473.

11

Vol. I, Rollo, G.R. No. 168380, pp. 241-43.

12

Saavedra, Jr. v. Securities and Exchange Commission, G.R. No. 80879, March 21, 1988,
159 SCRA 57, 62, citing Pambujan Sur United Mine Workers v. Samar Mining Co. Inc., 94
Phil. 932 (1954).
13

Tan, Jr. v. Gallardo, G.R. Nos. 41213-14, October 5, 1976, 73 SCRA 306, 310.

14

80 Phil. 556 (1940).

15

Zulueta v. Nicolas, 102 Phil. 944 (1958).

16

Ching v. Secretary of Justice, G.R. No. 164317, February 6, 2006, 481 SCRA 609.

17

G.R. Nos. 158613-14, February 22, 2006, p. 11.

18

Glaxosmithkline Philippines, Inc. v. Malik and Ateeque, G.R. No. 166824, August 17, 2006,
p. 5, citingPunzalan v. Dela Pea and Cagara. 434 SCRA 601 (2004).
19

Alcaraz v. Gonzales, G.R. No. 164715, September 20, 2006, 10, citing Metropolitan Bank
and Trust Company v. Tonda, 392 Phil. 797 (2000).
20

Glaxosmithkline Philippines, Inc. v. Malik and Ateeque, supra, p. 5, citing Cabaling v.

People, 376 SCRA 113 (2002).
21

Soria v. Desierto, G.R. Nos. 153524-25, January 31, 2005, 450 SCRA 339. 345,
citing Duero v. Court of Appeals, 373 SCRA 11 (2002), Perez v. Office of the Ombudsman,
429 SCRA 357 (2004).
22

Vda. de Bagatua v. Revilla and Lombos, 104 Phil. 392 (1958).