An uneasy truce has been brokered between the promoters of the country’s largest Indian airline, IndiGo. Rahul Bhatia and Rakesh Gangwal, who together hold a 75 per cent stake in the company, have agreed on a board structure that gives higher representation to Bhatia’s InterGlobe Enterprises (IGE). However, the board has agreed to strengthen the policy on related-party transactions, as demanded by Gangwal.
According to the new board structure, of the 10 members, IGE will nominate five, including chief executive officer (CEO). In addition, there will be four independent directors. As for Gangwal, he will continue to be the only representative from his side, and will not nominate any director.
According to the Articles of Association (AoA), the IGE group will continue to have the right to nominate CEO, MD, and president.
IndiGo Chairman M Damodaran, who’s former chairman of the Securities and Exchange Board of India (Sebi), is learnt to have played a key role in brokering peace between the promoters. “Damodaran played a key role to resolve this issue.
The board met for two days last week in order to work out a solution between the two,” a person aware of the development said.
In order to ensure the independence of directors, a head hunting firm will be appointed by the board to search for directors.
Under the new policy, the audit committee will decide whether to have an independent agency to vet all matters related to related-party transactions. Gangwal had wanted all related -party transactions to be vetted by an independent agency. However, external advice would be sought for all such transactions that are worth over Rs 2 crore and a bidding process would be mandatory for those contracts, the sources close to the development said.
Any further changes in related party transactions would have to be unanimously approved by the company’s independent directors. “This is to ensure that neither Bhatia nor Gangwal will be able to amend the RPTs in their favour in future,” a person aware of the developments said. Four top executives of the company, including CEO Ronojoy Dutta, CFO Rohit Philip, General Counsel Priya Mehra, and Company Secretary Sanjay Gupta have been asked to design stronger procedures for entering into related party transactions.
Meanwhile, the first right of refusal clause for buying each other’s shares will continue.
The dispute between the two promoters was playing out in the open after Gangwal on July 8 wrote to Sebi, alleging lack of corporate governance in the company. Gangwal alleged that Bhatia, with most of the controlling power in the company, had entered questionable related party transactions between group companies of IGE and IndiGo.