Sources said that the FIs have expressed certain reservations including;

* The extent to which equity can be reduced is questionable.
* The scheme will have an adverse affect on the company's operations.
* The taxation implication of the scheme on the company as well as the share-holders.
With the FIs and a section of shareholders adopting a tough posture at the AGM on the equity restructuring scheme, the resolutions were cleared only after anamendment that prior approval of FIs is necessary for their implementation.Significantly, the FIs made the company amend another resolution, which in effect means that Escorts can subscribe to only its rights entitlement (38.19 lakh equity shares) in the proposed rights issue of Escorts Finance Ltd. The FIs rejected the resolution pertaining to subscription to an additional amount of 1.44 crore equity shares, which was over the entitlement.

Sources said that the company's management would be meeting the institutions next week in Mumbai to discuss the proposals.FI sources said, "The scheme looks good at the outset", but has to be studied in detail before arriving at any decision. The FIs feel that a buyback proposal may have been "more transparent", instead of the company's innovative scheme.

The company could have gone for an enabling resolution on buyback pending the government's clearance if required. "But they have avoided the buyback route because of its liquidity position", quipped an institutionalsource.