Under the plan it had proposed to convert 50 per cent of its equity capital into 12 per cent redeemable preference shares (RPS). The RPS had a face value of Rs 90 each fully paid and were redeemable at par. It is understood that among the FIs - LIC had suggested "substantive modifications" to the scheme, and in fact buy-back as an alternative.The FIs including LIC, GIC and UTI which are the company's second largest share-holders, had earlier refused to ratify certain crucial proposals of the company at its AGM inSeptember. The FIs had raised queries on several fronts including depletion of reserves and the taxation implication of the scheme.

Sources said that the company has the next three to four months (till the next AGM) to decide whether or not it wants to devise a new scheme. The company has ruled out buying back its shares as it would require funds up-front.

Under the scheme, a share-holder having two equity shares in Escorts Ltd will be left with one equity share and one RPS of Rs 90 each after the restructuring is over. The RPS has a tenure of seven years and is redeemable at par in three equal instalments at the end of the fifth, sixth and seventh year from the date of allotment.

Earlier, the FIs had also referred the equity restructuring proposal to the finance ministry before taking a decision on it. This is because the institutions felt that it is a kind of buy back of shares and "it would be better if the finance ministry ratifies the proposal". The FIs had also scrutinised the buy-back guidelinesbefore taking a decision on the scheme as the equity is to be halved to Rs 36.38 crore.

The company has refuted the institutions' view that the scheme was not a kind of buy-back as it involves deferred payments, as against buy back of shares in which the funds may have to be brought up-front. Escorts has decided not to consider an alternative to the scheme as it was a specific proposal devised by the company. Also, since the scheme involved modifications (suggested by FIs), the company would have to take approval of the share-holders at the AGM for which it will have to wait till August-September.