IndiGo promoters' spat: Did Rakesh Gangwal throw in the towel?
Manu Kaushik August 29, 2019
Although the truce between the warring promoters of largest low-cost carrier (LCC) IndiGo has more to it than what meets the eye, it seems the fight is over for now. Last week, IndiGo co-founder Rakesh Gangwal issued a statement on his website governanceindia.com saying that he is satisfied with the new related party transactions (RPTs) protocols approved by the board, and is open to the amendments in the IndiGo's Articles of Association (AoA) to increase the board strength to 10. Gangwal also said that the board has closed an open issue that he had raised in his August 5 letter to the board.
The statement has come as a surprise because Gangwal agreeing to a 10-member board (and not seven as he has proposed earlier) still leaves his previous issue unresolved. While his statement has put an end to the months of speculation on the future of the LCC, which has a lion's share in the domestic aviation market, not everyone seems to buying the truce theory.
"There are chances that Gangwal has reached a middle ground with the other promoter but what made him do so, and under what circumstances are open for conjectures," says an aviation consultant who didn't wish to be quoted.
In fact, some evidences of a possible compromise can be seen in the amendments to the AoA at the recent annual general meeting (AGM). Post the amendments, IndiGo's board strength has been increased to 10 from the previous six members. In a 10-member board, the Bhatia camp shall have the right to nominate five, and Gangwal two. This is far higher than the arithmetically-sound seven-member board proposed by Gangwal in his letter to the board on August 5. "Due to how the math and Sebi rules work, a seven director board will close the large loophole automatically," Gangwal had said in a previous letter.
Gangwal's latest statement doesn't elaborate as to how the open issue has been closed since in a 10-member board structure, the "large loophole" still remains unplugged. In Gangwal's own words, in a 10-member board structure with five IGE Group nominees, there will still be periods of a few months when IndiGo will have less than four independent directors (due to retirements and resignations) that would allow the IGE Group to pass any company policy as they wish. Now the recent truce terms seem to indicate that Gangwal has taken a U-turn on his previous statement.
Incidentally, Gangwal did not attend the IndiGo's AGM on August 27. Not just Gangwal, his nominee on the board Anupam Khanna also skipped the meet, leaving the remaining four board members - Rahul Bhatia, Rohini Bhatia. Anil Parashar, and M. Damodaran - to answer all uncomfortable questions by the shareholders. The AGM was also the first time when the company's top brass came face-to-face with the curious shareholders ever since the spat between the promoters surfaced in May.
While one can argue that it takes time to mend fences or build bridges, especially after the unpleasant things that both parties said to each other over the past three months, Gangwal didn't have the fair chance to take his campaign to a logical conclusion. Reason: Despite having an almost identical shareholding, the extent of powers that the Bhatia's IGE Group holds in the airline makes it extremely difficult for Gangwal's RG Group to get any of its resolutions passed. The shareholders' agreement between the two is heavily loaded in favour of Bhatia. When their fight broke out, the Bhatia camp accused Gangwal of gaining control over the airline but Gangwal maintained that the fight germinates from lax corporate governance practices at IndiGo, and particularly the dubious RPTs between IndiGo and the companies personally owned by Bhatia.
This is not the first time the promoters smoked the peace pipe. Last month, there were reports of a truce between the two - brokered by former SEBI chief and IndiGo's chairman M. Damodaran - which Gangwal refuted later.