Gangwal alleges a 'large loophole' in the proposed new structure of the board
The rift between IndiGo promoters Rahul Bhatia and Rakesh Gangwal has resurfaced after a short lull.
While Gangwal has alleged that the proposed new structure of the IndiGo (InterGlobe Aviation) board will only add to the powers of InterGlobe Enterprises -- owned by Bhatia, airline Chairman M Damodaran has allayed those fears.
Gangwal, in a letter to the directors on Monday, and copied to market regulator Securities and Exchange Board of India (SEBI) and Ministry of Corporate Affairs, said he won't sign on the changes until a 'large loophole' in the new structure is sorted.
comments to the letter of Mr. Gangwal, with which the company will comply," said the airline in the statement.
The dramatic change in Gangwal's stance - making it clear that there was no 'truce' between the founders - comes after the extended July 20 board meeting ended with both sides agreeing on two things. One, the board will be expanded from six to 10 directors, and will include a woman independent director. And two, any related party transactions of over Rs 2 crore will now need the audit committee to get inputs from the board.
But Gangwal now says, "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."
The 'large loophole,' Gangwal adds, is this: "When there are less than four independent directors, it 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."
This, Gangwal argued, is against the very purpose of expanding the board. He had earlier alleged that the IGE Group was using the 'usual power' vested to it through the Articles of Association to control the airline.
The Articles of Association enable Bhatia's privately held firm to nominate senior leadership of the airline, and also has more representations on the board. Gangwal's RG Group, on the other hand, has one nominee to the board. He has now asked SEBI to intervene in the matter.
Gangwal has instead suggested that the board be expanded to 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," said Gangwal.
But replying to Gangwal's mail, Damodaran reiterated that once the amendment in IndiGo's Articles of Association get the shareholders nod in the upcoming AGM, the board will proceed with its expansion.
The expansion will include a woman independent director, a whole time/executive director, the third by an independent director and fourth by 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 the AGM on August 27.
"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.
It was through similar letters in early July that Gangwal had first made public the differences he has with Bhatia. Gangwal had alleged that because of the 'unusual powers,' IGE was benefitting from related party transactions with IndiGo. And that these transactions didn't follow corporate governance regulations. Gangwal even said governance standards in India's biggest airline were akin to that of a 'pan ki dukaan.'
Bhatia's IGE wasn't amused. While reiterating that the related party transactions were less than a percentage of IndiGo's topline, IGE alleged that Gangwal's ego was hurt because of a $20 billion engine deal.
IGE officials subsequently alleged that Gangwal had taken all the upside of the growth in IndiGo despite much lower investments than the Bhatia family, and now wanted to usurp power at the airline. IGE had also clarified that it won't agree to a dilution in its power.
But it looked like the July 20 board meeting had brought along a truce between the warring founders. The Board had agreed to expand its size and there was additional approval needed for related party transactions. But then, beyond the truce facade, it was clear that matters won't rest till the differences over the Articles of Association were sorted.
The facade has now been broken.
Gangwal has taken exception to what he calls "misinformation and false narratives that unnamed sources" of IGE planted in the media.
"I do not have the necessary infrastructure in India or need a PR agency to address these issues," said Gangwal and added that he has set up a site to post information. " I believe this is an effective way to have my voice heard," he said. The site, not incidentally, is called GovernanceIndia.
While the latest letter is uploaded in the site, IndiGo in its statement to the BSE said, "No reliance should be placed on the contents of this website as it may contain incomplete and therefore misleading information."
Gangwal though detail his reservations on the new structure, and adds 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.
"It appears," the co-founder further says, that the IGE is hoping to pass the resolutions to expand the board to 10 directors in the upcoming AGM, and later will use its powers to 'rework and dilute' regulations regarding the related party transactions.
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.
Gangwal has instead has asked the Chairman to pass a resolution to expand the Board to seven directors, and add a corrigendum to the AGM with the seven director option and alter the Articles of Association.
But going from Damodaran's reply, that suggestion has not been heeded to.While the Chairman said in his mail, "... I personally have no inclination to get into a continuing exchange of emails...," for sure, the battle between the two founders has just entered a new chapter.The Great Diwali Discount!
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