In a letter to IndiGo's Board of Directors dated August 5, Rakesh Gangwal refuted recent reports of a brokered truce between him and co-promoter Rahul Bhatia. In the strongly-worded letter, copies of which have also be sent to the Ministry of Corporate Affairs and Security and Exchange Board of India, Gangwal said that due to "serious unresolved issues" he won't vote affirmatively on the special resolution for "Alteration in Articles of Association" unless there is a change in the status quo.
"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," read the letter. He added that this is in "stark contrast" to a flurry of emails exchanged since July 20 where he has made his stand clear. This development sent the share price of InterGlobe Aviation, the parent of IndiGo, crashing over 5 per cent in intraday trading.
Gangwal has now clarified that his vote depends on the passing of a complementary board resolution to prevent Bhatia's InterGlobe Enterprises (IGE) Group "from getting even more rights and abilities than they have today" and putting the new Related Party Transaction policy in place. He added that while both parties have agreed on the language of the new policy, it is yet to be sent out for board adoption. Moreover, "changes to the articles are still an open issue".
According to him, IndiGo Chairman M. Damodaran, who was credited with brokering an agreement between the feuding promoters in late July, should have directed the company to "flag this material fact in the AGM notice in the interest of transparency and for the benefit of the minority shareholders".
During the two-day meeting over July 19 and 20 - to consider the unaudited financial results for the June quarter as well as to discuss governance issues, which was the bone of contention between the promoters - IndiGo's board Directors agreed to amend the Articles of Association of the Company for expanding its size from six members currently up to a maximum of 10.
Of the airline's current six-member board, three are promoters, one is a promoter nominee and only two are independent directors. But the new board structure proposed would pack in four independent directors, including a female one. "The said amendment of the Articles will be subject to approval of the shareholders at the forthcoming Annual General Meeting of the Company," InterGlobe Aviation said in a regulatory filing last month. The AGM is scheduled for August 27.
However, Gangwal's letter claims that the proposed board structure has created a "large loophole that gives the IGE Group additional powers that they do not have today". According to reports, of the proposed 10-member board, IGE Group will nominate five, including chief executive officer. Gangwal will continue to be the only representative from his side, and will not nominate any director.
"To progress matters and with my strong view to have a higher percentage of independent directors on the board I offered not to have any additional Gangwal group representative on the board and agreed to the addition of two new IGE Group members and two new independent directors," read his letter. He added that this means that whenever there are less than four independent directors, say due to retirement or resignations, it would allow the IGE Group to "pass any company policy that they want just on the basis of their board numbers being larger than all other board members combined".
According to him, this "governance loophole" has not really been resolved. When the promoter spat first became public, Gangwal had alleged that the unusual controlling rights available to the IGE Group gave Bhatia greater control over the board and management. "Seeking shareholder approval for the new board size without closing this large loophole is governance negligence and tramples on the rights of minority shareholders," he penned. As a solution he has proposed increasing the board size to seven members instead of 10. "Due to how the math and SEBI rules work, a sever director board will close the large loophole automatically," he explained.
Gangwal added that he has set up a new website, GovernanceIndia.com, to put out relevant information and "correct misinformation and false narratives that unnamed 'sources' plant in the press".