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IndiGo co-promoter Rakesh Gangwal refutes reports of truce with Rahul Bhatia

The letter from Gangwal hits out at reports about a truce with co-promoter Rahul Bhatia.

, ET Bureau|
Updated: Aug 06, 2019, 02.50 PM IST
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BCCL
Rakesh-inidigo-BCCL
IndiGo co-founder Rakesh Gangwal
IndiGo co-founder Rakesh Gangwal has informed its directors he cannot vote for a special resolution which will result in an expansion of the airline’s board size, until a resolution is passed to prevent his partner Rahul Bhatia from getting even more powers than he already has and a new policy for signing related party transactions is adopted.

Gangwal said “serious unresolved issues” made sure he was “no longer in a position to vote afftirmatively on the special resolution” that would change the articles of association of the company. That alteration is required to increase its board size to include more directors, one of the main issues discussed in a long two-day board meeting last month. That and other issues flagged by Gangwal have led to a public, bitter feud between the two partners that built India’s biggest airline by market share. IndiGo controls almost half of the Indian domestic passenger market.

Gangwal, his family and his family trust together own about 37% of the shares in the airline. A special resolution requires 75% of the shareholders’ vote. Without Gangwal’s assent, such a resolution will not pass through.IndiGo’s board currently has six members: Bhatia’s IGE Group and its two nominees, two independent directors and Gangwal. A proposal on July 20, was to increase it to 10: the IGE Group and its four nominees, 4 independent directors including a woman director and Gangwal. In his letter Gangwal said he offered not to have any other board nominee apart from himself.

But post the meeting, “all of us realised, that the proposed board structure created a large loophole, that gives the IGE Group additional powers that they do not have today,”

“Essentially when there are less than four independent directors, it would allow the IGE Group to pass any company policy that they want just on the basis of their board members being larger than all the other board members combined,” Gangwal wrote in his letter.

Capital markets rules mandate independent directors to constitute a third of the board. Even in the event of the resignation of an independent director, three of nine would fulfil that requirement, but give the IGE Group enough strength to pass any resolution on their own.

On July 24, the IGE Group said the appointment of its nominee directors wouldn’t precede the appointment of independent directors, during the transition period of the board being ramped up, according to Gangwal’s letter.

But the loophole remains in case of an independent director’s resignation after the transition period, in future. And the IGE Group “has not offered to close the large loophole after the transition period,” Gangwal said in his letter.

“Seeking shareholders’ approval for the new board size without closing this large loophole is governance negligible and tramples on the rights of minority shareholders,”

The shareholders’ agreement between Gangwal and Bhatia, which takes from clauses embedded in the articles of association during the time the company was incorporated, is heavily skewed in favour of Bhatia in terms of appointment of chairman, directors and top management. Gangwal has alleged these “unusual” rights have been misused. Bhatia has refuted the allegations while also said his IGE Group has time and again made the most critical investments in IndiGo.

Gangwal, in his latest letter, suggested that the chairman have a resolution passed to increase the board size to 7 by appointing a woman director. In that case too, the resignation of an independent, leaves the number of at two out of six or a third, but the IGE Group’s three director strength equals Gangwal’s and the two independent directors combined and may not have the muscle to move a resolution on its own.

“Regrettably, IGE Group is holding the process hostage,” said Gangwal in his letter.

Last month, Gangwal had in a letter to the Securities and Exchange Board of India flagged irregularities in many related party transactions—IndiGo’s deal with companies invested in or owned by Bhatia’s IGE group—and asked for a new policy for RPTs.

The new policy has been agreed upon but is yet to be adopted by the board. The adoption is another condition, before whose fulfilment, Gangwal won’t support the resolution for the change in the articles of association.

“We should also immediately put in place the agreed upon new RPT policy. All this can be done very quickly if we are interested in resolving the impasse.”


IndiGo-graph-123

Here are the screenshots of the letter:
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IndiGo's response
From: Meleveetil Damodaran <meleveetil.damodaran@gmail.com>
Sent: Monday, August 5, 2019 10:28 PM
To: rgangwal
Cc: anupam53; Rahul Bhatia - MD IGE; Rohini Bhatia; Anil Parashar; Ronojoy Dutta; Sanjay
Gupta (CEO's Office,ISC)
Subject: Re: AGM Meeting

Dear Colleagues,
This has reference to Mr Rakesh Gangwal's email of 5th August, in the context of the forthcoming Annual
General Meeting.

At the outset, let me quote from his mail indicating the areas of agreement.
" For those still following this saga, here is where we are today. We have agreement on all the contractual
language for (I) the new RPT policy (ii) the Board size and composition and (III) closing the large loophole
during the transition period. The only agreement we do not have is to close the large loophole after the
transition period"
Allow me to address what is seen as the remaining issue. To recap what I had stated earlier, the first vacancy to
be filled after the amendment of AoA, will be filled by a Woman Independent Director. The second vacancy to
be filled will be by a Wholetime/Executive director.( This is necessary since we presently have 6 NEDs,
including 2 IDs, and no Wholetime/Executive director.) The third vacancy will be filled by an ID, and the
fourth by an IGE nominee. That is the sequence contemplated. In the event of the position of an ID falling
vacant, the NRC, headed by Dr Anupam Khanna, ID, will be required to take steps to fill in the vacancy. The
fear that, in the interim, the IGE group will push through questionable decisions, does no credit to the IDs that
will be on the Board, or to the fiduciary responsibilities of the directors including those nominated by the IGE
group.
I am separately initiating a proposal for scheduling meetings of the AC, the NRC , and the Board, immediately
after the AGM. At that meeting of the AC, followed by a meeting of the Board, the RPT policy will be cleared.
At the meeting of the NRC, the selection of the Woman Independent Director will be addressed. I trust the
approach, indicated in the foregoing paragraphs, is clear . May I add that I personally have no inclination to get
into a continuing exchange of emails?

Warm regards,
Damodaran

(Meleveetil Damodaran is IndiGo chairman)



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