No truce at IndiGo yet, Gangwal seeks more board-level changes

Mumbai: The feud between the promoters of InterGlobe Aviation Ltd intensified, with co-founder Rakesh Gangwal opposing a plan to expand the airline’s board to 10 members, a departure from his earlier stand, alleging loopholes that will tilt the scales further in favour of his partner, Rahul Bhatia.

In a 5 August letter, Gangwal suggested directors of India’s largest airline, IndiGo, consider increasing the board strength to seven from the current six, weeks after the board approved a proposal to raise the number of directors to 10.

Gangwal said he will oppose the special resolution at the annual general meeting (AGM) on 27 August unless another resolution is passed by the board to prevent co-founder Bhatia’s InterGlobe Enterprises (IGE) Group from attaining more power and until a new policy on related-party transactions (RPT) is adopted by the company.

“The AGM notice, along with unnamed sources having planted press reports that the chairman has brokered peace and matters have been resolved, leaves a misleading and false impression that issues on RPTs and changes to the Articles have the support of both promoter groups,” Gangwal said in his letter to IndiGo’s board. “This is in stark contradiction to the numerous emails exchanged since July 20, and my July 27th email to board members.”

On 22 July, IndiGo said the number of directors in the company would be raised to 10, subject to shareholders’ approval. Under the 10-member set-up, Bhatia will have five nominations to the board, one from Gangwal and four from independent directors.

In the letter, Gangwal said that though he, along with others directors, had agreed to the framework of a new board composition and adoption of a new RPT policy at the 20 July board meeting, he later realized that the proposed board structure created large loopholes that favoured IGE Group.

“Subsequent to the board meeting and in finalizing the language on the Articles, all of us realized that the proposed board structure created a large loophole that gives the IGE Group additional powers that 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 that they want,” said Gangwal.

“However, IGE Group has steadfastly refused to close this large loophole after the transition period. It is inevitable that in the future, there will be periods of a few months when we will have less than 4 independent directors (retirements, resignations, etc.). And, for these situations we have not resolved the governance loophole,” added Gangwal.

The tussle between the two promoters came out in the open on 8 July when Gangwal accused Bhatia of violating corporate governance norms, among other things. Bhatia denies the allegations.

In a letter addressed to Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi, Gangwal alleged several transgressions at IndiGo, including those pertaining to related-party transactions; and appointment of senior management personnel, directors and the chairman, who has always been an independent director by convention.

Gangwal and his associates hold nearly 37% in InterGlobe Aviation, while Bhatia’s IGE Group holds around 38%.

In his latest letter, Gangwal suggested the board induct an independent woman director to increase its size to seven. “To break this impasse, I suggest that the chairman have a board resolution passed (he is the tie breaker in a vote) to raise our board size to seven and allow for the addition of an independent woman director and then issue a resolution as a corrigendum to the AGM with the seven director option to alter the Articles. Due to how the math and Sebi rules work, a seven-director board will close the large loophole automatically,” said Gangwal.

IndiGo’s non-executive chairman, N. Damodaran, had on Monday evening told directors and the chief executive of the airline that Bhatia and Gangwal have agreed on all the contractual language for a new policy on RPTs and the composition of the size of the board, but are yet to agree on a “closing the loophole after transition period”.

“I am separately initiating a proposal for scheduling meetings of the AC (audit committee), the NRC (nomination remuneration and compensation committee), and the Board, immediately after the AGM. At that meeting of the AC, followed by a meeting of the Board, the RPT policy will be cleared. At the meeting of the NRC, the selection of the woman Independent Director will be addressed,” Damodaran said in the letter.

On Tuesday, IndiGo’s shares rose 0.03% to ₹1,491.65 on the BSE, while the benchmark Sensex gained 0.75% to 36,976.85 points.