FIs, led by the Industrial Development Bank of India (IDBI), also spiked an alternate proposal by the Tata group for extension of the scope of the preferential allotment of warrants to all shareholders, enabling each member to apply for a minimum of 50 warrants on identical terms.

A visibly dejected ACC chairman Pallonji S Mistry said: "Unfortunately, the amended proposal has also not found favour with the institutions. In view of our cordial relationship with them, we have no option but to totally withdraw this resolution relating to preferential issue either to the Tatas or to the general body of shareholders."

Clarifying the institutions' stand, IDBI executive director TM Nagarajan said that offering 50 naked warrants to each shareholder, irrespective of currentshareholding levels, represented disproportionate allotment and was therefore opposed by the institutions.

With FIs opposing spiking the preferential allotment, the company found solace from its shareholders. Agitated with the stand taken by the FIs the shareholders charged them for lack of transparency and sought clarifications for taking such a "retrograde" step.

Some shareholders even requested the chairman to put the resolution on preferential allotment to vote, despite the opposition from the institutions. Mistry acknowledged the support from minority shareholders saying: "Perhaps the resolution may get carried on voice vote. But with FIs opposing, the resolution does not stand a chance if put to vote."

The withdrawal of the preferential allotment, however, failed to dampen the sentiments as the ACC stock gained 2.5 per cent to close at Rs 1,109 on the NSE. On the BSE, the scrip gained 2.02 per cent to close at Rs 1098.75 after touching an intra-day high of Rs 1,119.

The Tatas had offered toamend the resolution on preferential allotment so that warrants could be issued to all shareholders, who would be able to subscribe to the shares at the stipulated price of Rs 110 per share at any time during the next 18 months. The Tata group offered to pick up the unsubscribed warrants, in case the issue was not fully subscribed. But even this was rejected by the FIs without citing any specific reasons.

Tata Sons director (finance) NA Soonawala, who is also on the board of ACC said: "I am at a loss to understand as to how the institutions could reject even the revised proposal. We had sought an amendment in the resolution so that all shareholders could benefit, but even this was unacceptable to the institutions."

The withrawal of the preferential allotment leaves ACC with a Rs 100 crore gap for funding its various plans. This, the company hopes to bridge from the sale proceeds of its captive power plants.

ACC, however, proposes to continue its dialogue with the FIs on the preferential allotment issue."It is definitely not a closed chapter and we will pursue the matter with FIs," said company vice-chairman S Ganguly.

During the EGM proceedings, other resolutions relating to sub-division of the face value of equity shares from Rs 100 to Rs 10, rights issue in the ratio of 1:4 at Rs 55 per share, and increase in the authorised share capital from the present Rs 150 crore to Rs 225 crore, were passed.

The ACC chairman came out in full support of the Tatas at the EGM, stressing that the group was "indeed one of the original co-promoters of ACC". The Tatas are even today the single largest shareholders, holding approximately 14 per cent of the equity.

The institutional nominees, IDBI chief general manager JN Godbole and UTI nominee Amitabha Ghosh, declined to speak out on the issue.

The preferential allotment of 90 lakh naked warrants to the Tatas which was dropped today would have enabled the group's holding to over 17 per cent and brought in Rs 99 crore to ACC to fund its expansion plans.

Given thisscenario, the company is left with the option of raising Rs 189 crore through a rights issue.

According to Mistry, ACC has drawn up an exhaustive plan involving a fund infusion of Rs 700 crore to improve its competitive edge in the cement business. "This would result in an increase in capacity of around two million tonnes per year from the current year's level of 12 million tonnes as also improvement in the operating parameters at some of the existing plants." Mistry said.

No alternative before us, says Soonawala

The Tata group is left with hardly any viable alternative to raise its stake in ACC following withdrawal of the resolution on preferential allotment.

The Tatas will not be able to pick up any rights renunciations as they already hold 14 per cent and such a move will trigger the takeover code. "An open offer at this stage will hike the Tata group holding to 34 per cent, but this is not our target. More importantly, this route will not bring in the much-needed funds to ACC," said TataSons finance director NA Soonawala.

"The preferential allotment was the only viable route for us to increase our stake in the company, but now that it has been turned down, there is hardly any alternative left before us," Soonawala said.

The only option left before the Tatas is to go for the creeping acquistion route which allows buying a maimum five per cent equity from the market every year.