In a petition filed on September 7, Sebi has additionally sought a stay on the authority's order during the pendency of the court proceedings. Sebi says that the order has a crippling impact on its powers and authority to curb wrongdoing in the securities markets.

"It is absolutely imperative that pending the hearing and final disposal of the petition, the impugned order, including the decision on the jurisdiction of Sebi, be stayed and Sebi be allowed to file criminal complaints against HLL and its respondent directors", states Sebi's petition.

Sebi has named HLL, former HLL chairman SM Datta, current chairman KB Dadiseth, former vice-chairman R Gopalkrishnan, directors A Lahiri and MK Sharma, UTI, former finance secretary Montek Singh Ahluwalia, special secretary (banking) CM Vasudev -- both members of the appellateauthority-- and the union government as respondents in the case.

A division bench comprising chief justice MB Shah and Justice YS Jahagirdar, at a hearing on Monday, decided to club Sebi's petition with another petition filed by the Investors' Grievances Forum (IGF) regarding the same case. The bench posted the matter for a hearing on September 28.

While the Sebi petition was filed last Monday, the Investor Grievances Forum, on the other hand, had filed a petition around the same time seeking a court directive to Sebi on the HLL case.

Sebi was represented by senior counsel Rafiq Dada and solicitor Uma Dalal. HLL officials said on conditions of anonymity that they were hopeful that there stand would be vindicated by the court.

Sebi had, in an order dated March 11, 1998, pronounced HLL guilty of insider trading in the run-up to the merger with Brooke Bond Lipton. HLL challenged the verdict with the appellate authority in the finance ministry, which squashed the Sebi order. Among other things, theauthority held that Sebi had exceeded its brief in awarding a compensation of Rs 3.04 crore to the Unit Trust of India, which had sold 8 lakh shares of Brooke Bond to HLL.

Sebi's case was that HLL knew specifically about the merger, which UTI didn't, and hence was guilty of taking unfair advantage of inside information. The authority felt that since the merger was being talked about in the press, the news could not really be said to be "not generally known".

In its much-awaited challenge to the appellate authority's order, Sebi has urged the division bench to issue interim directions requiring HLL to deposit Rs 3.04 crore in court. In case it was held that Sebi had no jurisdiction in ordering HLL to compensate UTI to the extent of Rs 3.04 crore, the court should direct HLL to pay the amount, or any other such amount, to a statutory fund constituted under the Sebi Act or to any such investor protection fund.

This will prevent HLL from enjoying the benefits of wrongful gain/advantage from the saidtransaction, Sebi has contended.

According to Sebi, the balance of convenience is in its favour and the public interest also dictates that the interim relief be granted.Sebi has also stated that the finding by the appellate authority that Sebi lacks the jurisdiction to issue directions, as done in the HLL case, is contrary to law and unsustainable.

Section 11 (1) of the Sebi Act provides that it shall be the duty of the board to protect the interests of investors in securities and to promote the development of...and to regulate the securities market "by such measures as it thinks fit". "Section 11 (2) expressly provides that without prejudice to the generality of the powers conferred under section 11 (1) Sebi may take measures that may provide for the enumerated subjects, including the prohibition of insider trading", states Sebi.

It further contends that section 11B confers on the board the power to issue a wide range of directions after conducting an enquiry. "The language of sections 11 and 11B ofthe Sebi Act is broad enough to include within its ambit the directions issued by Sebi in respect to compensation to UTI", the petition states.

"The original order containing the direction of awarding compensation to the investor was not a penalty but restoration of the loss suffered by the investor", the petition states.

The appellate authority had held that Sebi had powers to initiate remedial action only under the insider trading rules and not the general powers available under Sections 11 and 11B. Sebi, however, says that it is a well-settled principle of law that "when a statute confers particular powers that are without prejudice to the generality of a general power already conferred, the particular powers are only illustrative of the general power and do not restrict the general power."