The Sebi order comes in the wake of the preferential allotment made by Hikal Chemical Industries of 14,66,700 equity shares to its promoters (the Kalyani group and Jai Hiremath & Associates) and Sumitomo Corporation of Japan. Subsequently, a report was filed with the market regulator under Regulation 3(4) of Substantial Acquisition of Shares and Takeovers Regulations, 1997. On examination, it was found thatsome disclosures required under provision (ii) of regulation 3(1)(C) of the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, in the notice calling the shareholders' meeting for passing the resolution for preferential allotment were not made.

In their reply to Sebi, the acquirers had contended that the disclosures required under provision (ii) to Regulation 3(1)(c) of the Takeover Code were necessary only if any of the proposed allottees were allotted shares such that their holding would increase to 5 per cent or more of the post-issue capital. It was further argued by the acquirers that the said provison was not applicable in this case as there were no allottees who held less than five per cent of the shareholding of the company in the pre-issue stage and whose shareholding would increase to five per cent or more in the post-issue stage. The acquirers also vehemently denied reports there was a willful attempt on their part to conceal any facts.

Sebi, however, has not accepted thecontention of the acquirers that such disclosure need not be made if the acquirers were already holding more than five per cent before the preferential allotment. States the Sebi directive, ``The regulation does not provide that an acquirer who holds more than five per cent need not comply with such disclosures. A harmonious interpretation should be resorted to and in view of the above considerations, the acquirers are directed to make a public offer as required under the Takeover Code.

Hikal Chemicals Industries, which is engaged in the production of chemicals for the pharmaceutical, agrochemical and dye industry, has been promoted by the Hiremath family and Surajmukhi Investments & Finance, a wholly-owned subsidiary of Kalyani Steels. Before the preferential allotment, Pune-based Kalyani group and the Hiremath family held 30 per cent stake each, while Sumitomo Corporation of Japan had an 18.77 per cent holding in the Rs 5.03 crore paid-up capital of Hikal Chemical Industries. Financially, the company hasbee slipping. In the first-half ended September 1998, the company incurred a net loss of Rs 2.74 crore on a turnover of Rs 19.1 crore.