A new twist has emerged in the ongoing fight between the co-promoters of IndiGo — Rahul Bhatia and Rakesh Gangwal — at a time when there was speculation that the two are close to reaching an agreement. While the board had on July 20 decided to expand the board from the current six members to ten, Gangwal has now written a letter to the directors with copies to the Sebi and the ministry of corporate affairs that the number of directors be raised to seven instead. This additional director should be an independent woman director, which is a regulatory requirement.
However, IndiGo chairman M Damodaran has rejected this demand by Gangwal. Gangwal’s main grouse regarding the expansion to 10 is that if a position of an independent director falls vacant at any time, the size of the board will be in favour of Bhatia’s InterGlobe Enterprises (IGE) which can during the interim period force through its policies. “Subsequent to the board meet and in finalising the language on the articles, all of us realised that the proposed board structure created a large loophole that gives the IGE Group additional powers they do not have today. Essentially, when there are less than four independent directors, it would allow the IGE Group to pass any company policy they want just on the basis of their board numbers being larger than all the other board members combined,” Gangwal said in his letter.
The current six-member board of IndiGo has three IGE nominees, one Gangwal’s appointee and two independent directors. Once the board is expanded to ten members, IGE’s nominees would go up to five, Gangwal’s will remain at one, while four independent directors would be appointed, one of whom would be a woman.
IndiGo’s annual general meeting has been convened on August 27 where the board expansion needs the ratification of the shareholders.
Post this, the company board will fill the board vacancies and at a later date the policy relating to related-party transactions (RPTs) which is the main bone of contention between Bhatia and Gangwal, will be taken up for changes.
Gangwal has written that a seven-member board will be evenly balanced one while a ten-member one leaves a large loophole which can be used by IGE to further its agenda. However, chairman of the board, Damodaran has rejected Gangwal’s suggestion. In reply to Gangwal’s letter, Damodaran wrote, “The first vacancy to be filled after the amendment of the articles of association will be a woman independent director. The second vacancy to be filled will be by a wholetime/executive director. The third vacancy by an independent director and the fourth by an IGE nominee. That is the sequence contemplated.”
Referring to Gangwal’s apprehension that if a position of an independent director falls vacant, IGE may use it to its advantage in terms of pushing proposals, Damodaran has said, “In the event of the position of an independent director falling vacant, the nomination and remuneration committee headed by Anupam Khanna, independent director, will be required to take steps to fill the vacancy. The fear that, in the interim, the IGE Group will push through questionable decisions does no credit to the independent directors who will be on the board or to the fiduciary responsibilities of the directors, including those nominated by the IGE Group.”
While Gangwal, his wife and his family trust own 37.02% shares in the airline, the IGE group controls 37.92% and the remainder is with the public.
On July 8, Gangwal had made differences with his partner public when he alleged corporate governance violations by the IGE group along with illegal RPTs entered with it.
Bhatia has refuted all allegations and called it an attempt to dilute the controlling rights of the IGE group over IndiGo.
