Who will captain IndiGo Airlines? After a brief hiatus, the rift between the two promoters of the airline has resurfaced. On Tuesday, Rakesh Gangwal, co-promoter of the budget carrier, said the rift over control continues in a letter to SEBI and ministry of corporate affairs. The warring promoter duo had reached an agreement to include inducting four new directors on the board of InterGlobe Aviation (IGA), on July 20.
Though Gangwal had agreed to the arrangement arrived by both the parties in their last meet, this time, he has alleged that adding new directors will only end up giving more control to Rahul Bhatia’s InterGlobe Enterprise. Earlier, in another letter on July 9, Gangwal had alleged that Bhatia’s InterGlobe Enterprise (IGE), holding 38 per cent share, decides on appointments of all major posts in the airline including chairman, managing director and CEOs.
Gangwal had questioned why a minority shareholder was allowed to decide on all major appointments? In his earlier letter, he had also alleged that IGE was entering into related party transactions with the airline by forming various companies. The IndiGo co-founder had said that corporate governance in India’s largest airline was akin to ‘paan ki dukan’. These apprehensions, including that of Bhatia exercising more control over the airline, were refuted in another letter to SEBI by Indigo Airline chairman M. Damodaran.
Earlier on July 20, the two co-founders had agreed that they will induct four new directors, including a woman director, on their board. They also decided that all related party transactions over Rs 2 crore would now require the approval of the board.
“Large loophole” in new board structure
In his recent letter, Gangwal had told market regulators that he won’t sign on the restructuring changes of the NSE and BSE listed IGA until a ‘large loophole’ is looked into.
Regarding the new Article of Association, which was decided on July 20, Gangwal said in his letter: "Subsequent to the board meeting and in finalising the language of the Articles, all of us realised that the proposed board structure created a large loophole that gives the IGE Group additional powers that they don't have today."
Gangwal says that this “large loophole” was that having four independent directors on the board, will allow the IGE Group to pass any company policy “that they want” just on the basis of their “board numbers being larger than all the other board members combined,” his letter said. This, Gangwal argued, would be against the purpose of expanding the board. Gangwal’s RG Group has only one nominee director on the IndiGo Board. He now has sought market regulator SEBI’s intervention in the matter.
Instead, Gangwal has suggested that the board should have seven directors, including a woman independent director. "Due to the math and SEBI rules work, a seven director board will close the large loophole automatically," he said.
However, replying to Gangwal's mail, Damodaran reiterated that the board will proceed with getting the shareholders nod on the amendment in IndiGo's Articles of Association. The expansion, he said, will include a woman independent director, a whole-time/executive director, a third independent director and an IGE nominee.
"The fear that, in the interim, the IGE group will push through questionable decisions, does no credit to the IDs (independent directors) that will be on the board, or to the fiduciary responsibilities of the directors including those nominated by the IGE group," said Damodaran.
The former SEBI chairman has separately initiated a process to conduct meetings of the board, the Nominations and Remuneration Committee (NRC) and the Audit Committee of the airline, after its AGM on August 27.
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"At the meeting of the NRC, the selection of the woman independent director will be addressed. I trust the approach, indicated in the foregoing paragraphs, is clear," said Damodaran. IGE officials alleged that Gangwal's ego is hurt over a previous $20 billion engine deal approved by Bhatia. They said Gangwal had enjoyed the rewards of growth in IndiGo, despite having much lower investments than the Bhatia family. IGE had also clarified that it won't agree to any dilution in its power over the airline’s control.
Gangwal added in his letter that IGE has refused to close the loophole. "It is inevitable that in the future, there will be a few months where we will have less than four independent directors (retirements, resignations, etc). And for these situations, we have not resolved the governance loopholes," said Gangwal.
Gangwal has also refused to accept Damodaran's suggestion to get a shareholders' approval for the expanded board, which will include five IGE nominees, and get a “final view acceptable to all” sometime later. "As for the agreed RPT policy...there is only silence on when or if it gets adopted by the company. This was not our agreement at the Board meeting, and after the Board meeting," said Gangwal.
In his reply, Damodaran said that the battle between the two co-founders of the airline has entered a new chapter. It now remains to be seen if IndiGo can avoid the turbulence created in the process.
