Hikal Chemicals had made a preferential allotment of 14,66,700 equity shares to the promoters and associates of Sumitomo Corporation. SEBI observed that the disclosures required under the proviso (ii) to Regulation 3(1) (c) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, in the notice calling the shareholders meeting for passing resolution for preferential allotment were not made.

The acquirers contended that disclosures required under the proviso are necessary only if any of the proposed allotee(s) is/are to be allotted such number of shares as would increase the holding to 5 per cent or more of the post issued capital.

SEBI said that in the disclosures made by the acquirers it was found that disclosures such as identityof allottees, price, shareholding pattern, consequential changes in voting rights and Board of Directors of the company etc as required under the regulation 3(1) (c) (ii) has not been made the acquirers.

SEBI has advised the acquirers to comply with the the obligations under chapter III of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

The acquirers had made the contention that the proviso (ii) to regulation 3(1) (c) of takeover code would not be applicable to the instant case as there was no allottee who held less than five per cent of the shareholding of the company and in the pre-issue stage whose shareholding would increase to five per cent or more in the post-issue stage.

SEBI did not accept this contention of the acquirer and said that such disclosures need not be made if the acquirer is already holding more than 5 per cent before the preferential allotment. The regulation does not provide that and acquirer who holds above 5 per cent need comply with suchdisclosures. In this regard a harmonious interpretation should be resorted to, SEBI ruled.