Indigo promoters' spat: Back to square one for Rakesh Gangwal after truce with partner Rahul Bhatia

IndiGo co-founder Rakesh Gangwal seems to be running out of options. He might find it hard to convince the board to accept his latest terms, and as some experts believe, might be forced out of the airline. After reaching a reported settlement with his other co-founder Rahul Bhatia last month, which Gangwal says never happened, he has raised a new set of conditions for the board to look into if they truly want to end the fight between the co-founders.

It seems that out of the three issues raised by Gangwal in his letter to Securities and Exchange Board of India on July 8, none of them has been resolved as yet. These include dubious related party transactions between IndiGo and Bhatia's IGE Group, unusual rights given to the IGE group under the shareholders' agreement (SHA), and appointment of independent woman director.

Also Read: IndiGo promoters spat: Rakesh Gangwal refutes reports of truce; stock plummets 5%

In a letter to the chairman on August 5, Gangwal says that while the issue of related party transactions (RPTs) is about to be concluded - awaiting the final board approval - with the adoption of new protocols, the expansion of board size to 10 members has a big lacuna. How? His argument is a bit complicated but to explain in layperson's terms, he means to say that Bhatia camp will still have a control over the board (after the expansion), and might even reverse its decision on RPTs later which it has agreed to now.

Instead, Gangwal has suggested that the board strength should be increased to seven - not 10 as he and other board members agreed on July 20 board meeting - that includes appointment of an independent woman director.

"Due to how the math and Sebi rules work, a seven director board will close the large loophole automatically," Gangwal said in the letter.

The chances for Gangwal to get board to agree to his terms are quite weak. Why? Simply because he doesn't have majority on the board right now to get his resolutions passed. Between Gangwal and Anupam Khanna (his nominee on the board), there are just two members of the Gangwal camp on the board right now. Bhatia, on the other side, has three members - Rohini Bhatia, Anil Parashar and himself. Since the chairman M. Damodaran, who is an independent director, is spearheading the board expansion exercise, it's expected that he will take Bhatia's side if and when there's a need.

Also Read: IndiGo promoters' spat: Rakesh Gangwal says he prefers short-term financial pain to seeing the airline falter

"As it stands right now, Gangwal would likely lose any resolution on this matter by a vote of 4-2," says a legal expert.

Gangwal has asked Sebi to intervene in the matter - just like he did the last time. But so far, IndiGo's response to queries raised by Sebi and Ministry of Corporate Affairs has been satisfactory. The airline management has also submitted the controversial EY audit report on the related party transactions to SEBI, though it's not clear that whether the markets regulator has given a clean chit to the report. It seems unlikely that Sebi would intervene unless it smells a rat.

From the time the fight between promoters came out in the public domain last month, it was clear that the Gangwal camp, which has an almost identical shareholding in IndiGo as Bhatia camp, stands on thin ice. The terms of the truce would change the structure of the board but they don't really dilute the rights of the Bhatia camp. With Gangwal unlikely to accomplish his objectives, it seems that the fight is far from over.

Also Read: Signs of truce at IndiGo as promoters Bhatia, Gangwal agree on compromise formula