The shaky truce between the founders of IndiGo, the country’s largest airline, appears to have crumbled.

US-based Rakesh Gangwal, who holds a 36.65 per cent stake in InterGlobe Aviation, the parent company that owns the airline, has fired off a fresh letter in which he said he will not vote in favour of a special resolution seeking to expand the board of directors to 10 from six at present.

The resolution, which is due to be placed before the shareholders on August 27, will have to be approved by at least 75 per cent of the votes cast.

Gangwal’s grouse is that the proposal to expand the board of directors has created a large “corporate governance loophole” by giving the IGE Group “additional powers that they do not have today”.

He explained: “Essentially, when there are less than 4 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”.

In his letter, Gangwal said he had drawn attention to the loophole through e-mails after the July 20 meeting. Once this concern was flagged, the directors agreed that a separate board resolution would be moved at the AGM to “prevent the IGE group from getting even more rights and abilities than they have today”.

Impasse prevails

Bhatia, who has a 38.23 per cent stake in the airline through his IGE group, had offered to hold off on the appointment of his nominees till the new independent directors were appointed but Gangwal does not trust him not to exploit the governance loophole.

Gangwal claims: “It is inevitable in the future there will be periods of a few months when we will have less than 4 independent directors (as a result of retirements, resignations etc). And for these situations, we have not resolved the governance loophole,” Gangwal said in his letter.

Gangwal said at the July 20 board meeting, InterGlobe chairman Damodaran had suggested a formula to break the impasse that included a framework for the composition of a new board, and the adoption of a new policy on related party transactions (RPTs).

In early July, Gangwal had accused Bhatia’s IGE Group of building an ecosystem of companies that entered into questionable related party transactions with IndiGo that were not always in the best interests of the airline.

The wording of the RPT policy has since been agreed but it hasn’t been adopted. Gangwal fears that if the IGE group gets shareholders’ approval to nominate five members to the board of directors, “they would have the opportunity to rework and dilute the agreed upon RPT policy after the AGM”.

As a consequence, Gangwal has now suggested that the shareholders should now be asked to choose between two proposals relating to the board composition: a seven-member board with the addition of one independent woman director which will automatically close the loophole, or a 10-member board that will leave the scope for a large loophole.

Damodaran responds

InterGlobe Aviation chairman M. Damodaran tried to put the record straight after receiving Gangwal’s letter.

In a letter written to all the IndiGo directors, which was released to the exchanges in the evening, Damodaran recapitulated the agreements that had been reached between the parties.

“The first vacancy to be filled after the amendment of the AoA will be filled by a woman independent director. The second vacancy to be filled will be by a wholetime/executive director….The third vacancy will be filled by an ID (independent director) and the fourth by an IGE nominee. This is the sequence contemplated,” he said in the letter.

The chairman said that the fear expressed by Gangwal that the IGE group would be able to push through questionable decisions as a result of the loophole was unfounded. He said if the position of an independent director fell vacant, the nominations and remuneration committee (NRC) headed by independent director Anupam Khanna would take steps to fill it.

The InterGlobe chairman said he would schedule appointment of the audit committee, the NRC and the board immediately after the AGM where the policy on related party transactions will be cleared.

The NRC meeting will select the woman director.

It was not immediately clear how Gangwal would vote against the special resolution at the AGM since he is tied down by a shareholders’ agreement that obligates him to vote with Bhatia’s IGE group on all resolutions. The shareholders’ agreement (SHA) expires in October.