Within a fortnight of IndiGo announcing peace between the two founders, Rakesh Gangwal has made a U-turn, saying he will not vote in favour of resolutions that intend to expand the size of the board to 10 members. Instead, he wants a seven-member board. Without his support, the special resolution to amend the articles of association will not be passed as it requires the support of 75 per cent shareholders.
Gangwal, his family and his family trust together own about 37 per cent of the shares in the airline. At the board level, Gangwal has support from independent director Anupam Khanna, who is also his classmate from IIT Kanpur.
Gangwal’s refusal to back the resolution, agreed upon at the July 20 board meeting, hinges on the fact that during the transition period of expansion of the board, there will be a few months when the company will have less than four independent directors due to retirement and resignation. This, Gangwal feels, could give partner Rahul Bhatia’s Interglobe Enterprise (IGE) disproportionate representation to pass any policy.
However, responding to Gangwal’s letter to the board dated August 5, the chairman of the company, M Damodaran, has said his fears were unfounded.
“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 four independent directors (retirements, resignations, etc.). And, for these situations we have not resolved the governance loophole,” Gangwal wrote to the company’s board. The email was reviewed by Business Standard.
He also said the board had not agreed to the new procedures on related-party transactions (RPT) yet. “As for the agreed upon RPT policy, there is only silence on when or if it gets adopted by the company,” he wrote.
IndiGo promoters Rahul Bhatia and Rakesh Gangwal, who together hold 75 per cent stake in the company, have had a public showdown after Gangwal wrote to the Securities and Exchange Board of India (Sebi) alleging lack of corporate governance. Gangwal alleged that Bhatia, who holds controlling power in the company, has used it to enter questionable related party transactions between IGE and IndiGo—two group entities.
“These controlling rights give IGE group significant influence over the decisions of the company. Our concern is that such overarching control over the company by the IGE Group should not become a vehicle for them to enter into related party transactions with the company in the manner that may have taken place,” Gangwal had written on July 8 in a letter addressed to Sebi chief Ajay Tyagi. This was despite an independent forensic audit done by consultancy firm EY finding no “substantial lapse” in the process. Such transactions also included 0.50 and 0.53 per cent of IndiGo’s total turnover in the last two fiscal.
On Monday night, Damodaran sent an email to Gangwal, saying his 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.” He assured Gangwal that after the Annual General meeting, the firm’s audit committee and remuneration panel will meet to finalise the RPT procedure.
Damodaran laid down the sequence of how the new directors will be added to the board. The first vacancy will be filled by a woman independent director, the second by a whole-time executive director, the third by an independent director, and the fourth by an IGE nominee. In the event of the position of an independent director falling vacant, the remuneration committee, headed by Anupam Khanna, will be required to take steps to fill in the position. While Gangwal didn’t respond to text messages on whether he was satisfied with Damodaran’s assurance, he had previously questioned the neutrality of the IndiGo board chairman, who was earlier Sebi chief.