New Delhi: The Cabinet is likely to take up the call option issue of VSNL today (Jan11,2007) , where it would discuss the legal validity of it in case the Tatas decide to exercise it.

The Ministry of Finance has moved the Cabinet to discuss the legal validity of such a scenario if the Tata Group decides to raise its holdings in VSNL. Government holds 26 per cent in VSNL after its disinvestment and Tatas have the time to exercise the call option until February 12 2007, official sources said.

The Cabinet is looking at a scenario if the Tatas exercise their call option to buy out the government's remaining stake in VSNL ,the call option for which expires in February 2007.

VSNL officials declined to comment on the issue.

Earlier, Government had rejected Sterlite Industries exercise of call option to buy residual equity via call option saying the Companies Act does not permit it, as it is in conflict with shareholders' interest.

The Finance Ministry's move comes as a pre-emptive measure to stand on legal ground if Tatas want to exercise the option.

An option can either be a call option or a put option. A call option is where the buyer has the right to buy the underlying security from the writer on the date of maturity at the set price called the exercise price or the strike price. A put option on the other hand is the right of the buyer to sell the underlying security at the exercise price on the expiry (maturity) date.

The buyer of the option, whether call or put has to pay negotiated price (premium) to the seller to acquire the right to exercise the option, called the option premium and the seller accepts the obligation for which he receives a fee.