Speaking to The Indian Express, MTNL chairman S Rajagopalan said that the Board had decided to shelve the buyback move owing to the depressed level of share prices which represents the investors' misgivings in recent times. ``Going in for such an investment at a time when the share price of the scrip is already low, instead of the company investing similar funds in areas yielding higher investment returns may cause long term damage to the MTNL share in the market,'' Rajagopalan added.

Sources explain that the MTNL scrip has crashed to around Rs 160 per share fromits level of Rs 235 per share at the time of its GDR last year. While the failiure of the cellular foray of the company to take off as the matter is still subjudice is the major reason for the plummeting price of the MTNL share, the buyback move by the government has not helped matters either.

Rajagopalan said that the board decision was being communicated to the government adding that the corporation would not have surplus funds next financial year as it was embarking on major expansion and modernisation projects.

Other reasons which have pushed the MTNL Board to decide against the byback was the lack of clarifications from the government itself. Another reason for the MTNL Board deciding to oppose the buyback of its shares was that the three crucial clarifications demanded by the MTNL had so far evinced no response from the government. The clarifications sought by MTNL included - whether the company's purchase of shares would be liable for a 10 per cent dividend tax, the stamp duty to be levied on thisshare transfer and the format for the solvency certificate to be obtained from the Securities and Exchange Board of India (SEBI).

The government had ordered MTNL to buyback five per cent of its equity from the government. The government owns 56 per cent of the MTNL equity while 44 per cent is held by the public and institutions. Last month, the Cabinet had cleared crossholdings between three oil companies - Indian Oil Corporation (IOC), Gas Authority of India Ltd (GAIL), Oil and Natural Gas Commission (ONGC), buyback/crossholding of five per cent equity between MTNL and VSNL and a buyback of NALCO.

MTNL launched its internet services earlier this month at Mumbai and Delhi as part of its expansion drive. Regarding the surplus funds, Rajagopalan said that even for the purpose of buyback, the condition was that there should not be any immediate need of these funds for developmental purposes.

"This condition is not valid next year. We have huge plans for expansion and development," he added.