Escorts is seeking the approval of its shareholders on Friday for the equity restructuring scheme. The institutions' vote on the resolution is mandatory, according to the law.

When contacted, a company spokesman said: "The financial institutions have informed us that they are sending their representatives to attend the AGM tomorrow".

Sources in the company, however, confirmed that the institutions had raised a lot of queries on the scheme earlier on issues like depletion of reserves, profits and accounting practice -- to which the company had replied.

According to the company, it has clarified to the FIs that there would be no depletion of reserves as the pay-out will be funded by capital redemption. The capital redemption reserves would accumulate as a result of the payments which group companies owe to the flagship. The pay-out would only take place after five years of the date of allotment.

Sources also said that the resolution regarding the scheme cannot be modified at this stage. "It may be either approved or dropped altogether" since it is a special resolution. Escorts had announced an equity restructuring scheme under which it would convert 50 per cent of its equity capital into 12 per cent cumulative redeemable preference shares (CRPSs). The CRPSs will have a face value of Rs 90 each, will be fully paid and redeemable at par.

After the conversion, the equity capital of the company would be reduced by half to Rs 36.38 crore. The scheme is compulsory for all shareholders and would not effect any change in the shareholding pattern.

A shareholder having two equity shares in Escorts will be left with one equity share and one CRPS of Rs 90 each after the restructuring is over. For issuing these 12 per cent CRPSs of Rs 327.42 crore on conversion of Rs 36.38 crore of equity share capital, the company will capitalise amalgamation reserves of Rs 48.21 crore and general reserves of Rs 242.83 crore.

For a shareholder who holds two equity shares, one would be exchanged for one CRPS with a tenure of seven years which is redeemable at par in three equal instalments at the end of the fifth, sixth and seventh year from the date of allotment.

Explaining the reasons for their hard stand on the scheme, institutional sources said the FIs had earlier come under a lot of flak from the finance ministry for clearing the controversial de-subsidiarisation scheme of the company. "We don't want to take any chance this time round," the sources said.