HLL's comments to SEBI have come in the wake of the regulator filing a caveat in the Supreme Court seeking adequate notice from the company if it decides to appeal against the Mumbai high court verdict.

While making it clear to SEBI that it has no plans to move the Supreme Court, HLL has pointed out that the high court verdict in no way allows SEBI to initiate prosecution against the company's top officials. The verdict, which stays certain findings of the appellate authority, is general and not specific to the HLL insider-trading case, the company has contended.

SEBI, on the other hand, is interpreting the order in a manner which paves the way for the regulator to file criminal prosecutionproceedings against the company in a court of law.

According to top SEBI sources, the order is fairly clear in that it allows SEBI to initiate prosecution against the company.

"The written order of the court states explicitly that the operation and effect of two findings of the appellate authority had been stayed. There is no ambiguity at all. We are nevertheless examining all the legal aspects before we file prosecution proceedings," said a top SEBI source.

The court order states: "Operation and effect of the following findings given in the impugned order dated July 14, 1998, passed by the appellate authority is stayed---an order of prosecution should be based on conclusive determination of all aspects of insider trading and on specific justification in terms of the gravity of the offence."

SEBI sources said that it was going ahead with its plan to initiate prosecution, as all the legal advice it had received so far, including that from its senior counsel Anil Dewan, indicated that the regulatorwould be legally correct in filing prosecution proceedings.

In fact, whether SEBI now files prosecution is the key issue. Legal sources pointed out that it could take a long time for the matter to be finally disposed off by the Mumbai high court. "Even though the bench had ordered expeditious hearing of the case, given the backlog of cases, it could take a long time for the case to be tried. In several other cases, it takes more than two years for a case to be disposed off," said a legal source.

The regulator, therefore, is keen to file prosecution proceedings in a criminal court in a bid to enforce its order.

HLL is bound to contest the filing of prosecution proceedings tooth and nail considering that this would severely tarnish the image of its directors and the company. This was pointed out to the high court as well at the hearing on September 28. It is, therefore, taking a strong stand that the appellate authority verdict, which had exonerated HLL from charges of insider trading, still standsdespite the stay on a couple of findings of this verdict.

"The focus has now shifted to whether prosecution will be launched or not. SEBI seems to be taking its time in making the next move. The next date of hearing in the matter is only going to be fixed some time after December 13", said a source.

In its March 11 order, SEBI had ordered prosecution against five directors and compensation to the Unit Trust of India (UTI) by HLL to the extent of Rs 3.04 crore.

HLL had challenged the SEBI verdict before the appellate authority, which through its July 14 order struck down the SEBI verdict. Subsequently, SEBI filed an appeal before the Mumbai high court challenging the appellate authority verdict. On September 28, the court, while admitting the petition, stayed two findings of the appellate authority on filing of prosecution and exercise of powers by SEBI.