While admitting Sebi's petition challenging the appellate authority's verdict and listing the case for expeditious hearing, the court, in an oral order on Monday, said that Sebi was free to file a complaint for the prosecution of five directors of Hindustan Lever. The court also directed HLL to file a petition before it if the company did not agree with any of the appellate authority's findings.

The first hearing of the case which came up before a division bench comprising chief justice MB Shah and justice YS Jahagirdar dragged on for almost two hours. Sebi was represented by senior counsel Anil Dewan and HLL had Arun Jaitley and Ashok Desai by its side.

The appellate authority had ruled thatthe Sebi order to award compensation to the Unit Trust of India, apart from suffering from procedural deficiencies, also lacked in jurisdiction.

The authority had also ruled that an order of prosecution should be based on a conclusive determination of all aspects of insider trading and on specific justification in terms of the gravity of the offence.

Sebi had contended that the interpretation of the appellate authority on its jurisdiction would have a crippling impact on a vast area of regulatory activities. Similarly its comments on conditions for ordering prosecution were not sustainable in law. Both these findings of the appellate authority have now been stayed.

During the hearing, Sebi's senior counsel, Anil Dewan, made it clear that Sebi was not vindictive against HLL, but wanted a stay on some findings of the appellate authority so that its power to issue remedial action was not taken away from it. The pertinent question raised was whether Sebi had the jurisdiction to order compensation asremedial action.

Sebi's counsel argued that the act had vested powers with Sebi to initiate action to protect the interests of investors. The regulator should also not be barred from prosecuting those guilty for alleged offences of insider trading, said the Sebi counsel.

The Sebi counsel also argued that if the regulator was to only go by the regulations and the penalty prescribed therein, then an insider trader could make gains of Rs 100 crore and get away by paying a penalty of only Rs 5 lakh. It is for this reason that Sebi had been accorded wide ranging powers to award any compensation as remedial action.

The Sebi counsel said that Unilever, the parent company, in order to raise its stake in the merged entity (HLL) would have had to incur an expenditure of Rs 46.45 crore inclusive of the Rs 28 crore for purchase of the eight lakh Brooke Bond shares. Instead, HLL depleted its reserves to acquire the shares. This also led to the country facing a forex loss of the same amount, he said.

HLL counselcontended that the information (on the merger of BBLIL with HLL) was generally known as it had been published and therefore ceased to be "price sensitive". They added that since the swap ratio was not known at the time of the purchase of shares, the action of HLL did not amount to insider trading.

When the bench gave the go-ahead to Sebi to file prosecution proceedings, the HLL counsels pleaded that the bench should not give any directives to this effect as this would cause serious damage to the directors in terms of their reputation, travel, liberty as well as the share price of the company.

Earlier, the Sebi senior counsel pleaded that there were several other cases which could be hampered in the event of the appellate authority order pertaining to launch of prosecution proceedings and jurisdiction not being stayed.

The court fell short of passing strictures on UTI and asked it to inform the court whether it proposed to file a petition or not. At the commencement of the hearings itself, the benchasked the counsel for UTI why it had not filed a petition.

Counsel replied that the trust had moved a petition before the appellate authority seeking higher compensation. This had been dismissed by the appellate authority. In the circumstances, the trust decided to refrain from filing a petition since its regulator, Sebi was already doing so.

The bench, however, observed that UTI was holding public money and should therefore have been concerned about the compensation awarded to it.

When, the counsels for HLL sought dismissing of Kirit Somaiya's public interest litigation on the grounds that Sebi and UTI were already parties, the bench was about to rule that in such an event the PIL needs to be dismissed.

However, at this point of time, UTI's counsel said that while UTI is considering filing a petition a decision to this effect has not been taken. The bench then observed that if UTI does file a petition then the PIL will be dismissed. If it does not, then the PIL will be taken up for hearing onNovember 16.

Unit Trust officials were not available for comment but sources said that following the observations made by the bench, UTI can only be expected to file a petition seeking compensation.

Unit Trust rapped

The Mumbai high court has pulled up the Unit Trust of India for not having filed a petition despite having been an aggrieved party in the Hindustan Lever insider trading case.

The court fell short of passing strictures on UTI and asked it to inform the court whether it proposed to file a petition or not. At the commencement of the hearings itself, the bench asked the counsel for UTI why it had not filed a petition. Counsel replied that the trust had moved a petition before the appellate authority seeking higher compensation. This had been dismissed by the appellate authority.

In the circumstances, the trust decided to refrain from filing a petition since its regulator, Sebi was already doing so.

The bench, however, observed that UTI was holding public money and should thereforehave been concerned about the compensation awarded to it.

When, the counsels for HLL sought dismissing of Kirit Somaiya's public interest litigation on the grounds that Sebi and UTI were already parties, the bench was about to rule that in such an event the PIL needs to be dismissed.

However, at this point of time, UTI's counsel said that while UTI is considering filing a petition a decision to this effect has not been taken. The bench then observed that if UTI does file a petition then the PIL will be dismissed. If it does not, then the PIL will be taken up for hearing on November 16.

Unit Trust officials were not available for comment but sources said that following the observations made by the bench, UTI can only be expected to file a petition seeking compensation.