Application for Administrative License Filed by Administrative Counterpart Shall Comply with Basic Requirements of Laws
2022.11.03 view:

——Zeng vs. China Securities Regulatory Commission on Non-performance of Administrative Licensing Duties

[Principle of Adjudication]

Where an administrative counterpart requests an administrative organ to perform its statutory duties of administrative licensing, the pre-condition shall be that an application for administrative licensing in compliance with basic requirements of laws has been filed with the administrative organ. Where an administrative counterpart still applies for administrative licensing while clearly knowing that the application materials obviously fail to meet basic requirements of laws, such an act constitutes an abuse of the right to apply for administrative licensing. If such an application is allowed, the normal work order of the organ that handles administrative licensing applications will surely be affected, and finally, the legitimate rights and interests of others who file administrative licensing applications as required will be impaired. Therefore, it is appropriate for the administrative organ to return administrative licensing applications that fail to comply with the requirements of law. The administrative litigation filed by the administrative counterpart regarding such a situation lacks a factual basis and a ruling to dismiss the action shall be made in accordance with the law.

[Implications]

As the reform to “streamline administration, delegate power, improve regulation and upgrade services” advances in recent years, administrative organs have further lowered the threshold for administrative licensing, reduced operational costs of market players, and promoted the vitality and innovation capability of them. However, application for administrative licensing by administrative counterparts shall meet basic requirements of laws. Where an administrative counterpart still applies for administrative licensing while clearly knowing that the application fails to meet basic requirements of laws, such an act constitutes an abuse of the right to apply for administrative licensing. The administrative organ may determine that such an application does not constitute a valid administrative licensing application in law and return the application. In this case, through the interpretation of the Administrative License Law, principles for the handling of an administrative licensing application that fails to meet basic requirements are clarified. The ruling to dismiss in accordance with law the lawsuit filed by the administrative counterpart who abuses the right of administrative licensing has safeguarded the normal work order of the organ that handles administrative licensing applications and bears positive significance in regulating licensing procedures of the securities market, protecting legitimate rights and interests of the other administrative licensing applicants and promoting healthy and orderly development of the securities market.

[Basic Facts]

On March 28, 2021, Zeng sent a mail containing only one page of paper titled “Application for the Establishment of a Securities Company” to the China Securities Regulatory Commission (hereinafter referred to as the “CSRC”) through the China Post. The full contents of the paper include: To the China Securities Regulatory Commission: Application for the Establishment of a Securities Company. I. Application report and application form (see notes for details, same hereinafter). II. Proof documents to demonstrate that all proposed shareholders have completed full statutory procedures for the matter under application, including proof documents of procedure approvals by relevant higher-level authorities or regulatory authorities (if applicable). III. Relevant contracts or agreements executed by all proposed shareholders. IV. Shareholding structure chart of the securities company, and explanation of affiliated relationships among shareholders and relationship of persons acting in concert. V. Letter of undertaking by the securities company planned to be established and the proposed person-in-charge of equity management matters, and documents on measures agreed in advance by relevant parties to handle possible violations of the provisions or undertakings. VI. Draft Articles of Association. The draft articles of association shall be affixed with seals of all proposed shareholders, and be signed by their legal representatives or authorized representatives. VII. The pre-approval notice for the name of the securities company planned to be established. VIII. Explanation of internal management system, set-up and functions of internal departments, business premise and technical system, organizational management structure, business scope and business development plan, etc. IX. Resumes of the proposed Chairman of the Board, General Manager and Chief Compliance Officer and explanation of how they meet the appointment requirements. X. A legal opinion issued by a domestic law firm in China. XI. Proof documents to show that the proposed shareholder and the actual controller who holds 5% or more of the securities company’s equity satisfy the corresponding qualification requirements. XII. Any other documents stipulated by the CSRC. Notes: It is hereby stated that the applicant believes that the above materials (especially item XII) may be supplemented or corrected by submitting further materials within 30 working days after the receipt of the notice of supplement or correction from you. Applicant: Zeng; March 28, 2021. On March 31, 2021, the “CSRC Government Service Platform” sent a short message to Zeng with these contents: “The application materials you submitted for review and approval of the establishment of Zeng’s securities company have been received. Please obtain the electronic receipt voucher from the CSRC Government Service Platform. The accepting authority will, within five working days, send the decision on whether to accept this administrative licensing application or to request supplement or correction of materials to the CSRC Government Service Platform. Please pay attention to the system and SMS notifications. If it is received by a CSRC office, please go to the accepting unit to collect the receipt voucher as soon as possible (the collector needs to bring the original letter of introduction from the relevant party and a copy of his/her ID card in order to collect such voucher).” On April 6, 2021, the CSRC gave a reply by phone to Zeng stating that the Application for the Establishment of a Securities Company submitted by Zeng was only a catalogue of application materials and did not constitute an administrative licensing application in law, and the CSRC would not accept such application. Zeng was asked to prepare relevant materials in accordance with requirements in the service guide for administrative licensing matters with respect to the “Review and Approval of Establishment of Securities Companies” published on the website of the CSRC, and submit them again to the CSRC. Zeng said in that phone call that he would like to find relevant personnel, equipment and shareholder, etc. after receiving the receipt voucher, or supplement or correction notice from the CSRC. On April 7, 2021, the CSRC returned the Application for the Establishment of a Securities Company submitted by Zeng by registered mail (China Post). Zeng refused to accept such a return of materials and applied for administrative reconsideration to the CSRC. Later on, Zeng withdrew the application for administrative reconsideration, and the CSRC made the decision to terminate administrative reconsideration on the 14th of the same month. Then Zeng filed an administrative lawsuit with the Beijing Financial Court on June 29, 2021. The Beijing Financial Court made the first-instance ruling on January 10, 2022, dismissing Zeng’s claims. Zeng refused to accept the first-instance ruling and filed an appeal. The High People’s Court of Beijing Municipality made a final ruling on March 11, 2022, dismissing the appeal and affirming the first-instance ruling.

[Judge Comments]

The Beijing Financial Court handles financial administrative cases with “the People’s Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange” as defendants. It undertakes the important tasks of lawfully regulating the administrative acts of financial regulatory authorities and promoting their administration by law. Meanwhile, it is also necessary to regulate the behaviors of administrative counterparts, make clear which acts constitute abusing their rights and set boundaries for their behaviors. In this case, I determined in accordance with the Administrative License Law that the administrative licensing application filed by the administrative counterpart obviously failed to meet basic requirements of laws, and ruled in accordance with the law to dismiss the lawsuit filed by the administrative counterpart, which effectively regulated the conduct of the administrative counterpart and provided judicial protection for maintaining the basic order in administrative licensing applications.

[Expert Comments]

Expert: Xie Zhiyong, Professor, College of Comparative Law, China University of Political Science and Law

In the administrative procedure of this case, the plaintiff requested the administrative organ to “resume licensing procedure”, which shall be based on the premise that objectively, there was an administrative procedure that was started but interrupted for some special reasons. However, judging from the evidence of the parties and facts ascertained by the people’s court, the plaintiff did not actually initiate an application procedure under the Administrative License Law. The application procedure is a “procedure with pre-conditions” and shall comply with the requirements of laws, so there was no “procedure to be resumed”. Therefore, it is correct for the Beijing Financial Court to determine that the action lacked “specific claims and factual basis” as required by Article 49 (3) of the Administrative Procedure Law and dismiss the action accordingly.

The essential request behind the case was the administrative organ be ordered to perform its statutory duties in accordance with the law. According to the Administrative Procedure Law and the relevant judicial interpretations, when a citizen brings a lawsuit to the people’s court for an administrative organ’s nonperformance, the basic condition for case filing is the fact that the citizen made an application to the administrative organ before, and this is a basic condition for acceptance of case filing. However, in this case, the plaintiff adopted a seemingly “technical” approach by providing a catalogue of application materials only rather than relevant materials, which is indeed suspected of an abuse of administrative and judicial resources. The people’s court did not deem “an application was made” on the ground that “a catalogue was provided”, and that was a correct position. Beyond this case, citizens should be reminded not to use the so-called “legal skills” or “litigation skills” to gain interests outside the laws. Blasphemy of the law will not be encouraged, and shall even be punished.