MUMBAI (NewsRise) -- IndiGo, India's biggest airline, is set to witness another round of boardroom battle after warring co-founder Rakesh Gangwal said a truce between him and his partner is far from being in place unless a pact is reached on the controversial shareholders' agreement.
The bitter feud between IndiGo's founders appeared to be dying down after media reports last month suggested Gangwal and the other co-founder Rahul Bhatia reached an "in-principle" agreement on the outstanding issues related to the carrier's board and related-party transactions. But the latest statements from Gangwal, who holds 37% in IndiGo parent InterGlobe Aviation, suggest the acrimony persists.
The tussle comes at a time when India's aviation industry is going through a turmoil that saw the grounding of Jet Airways, once the nation's top carrier. The collapse of Jet earlier this year amid a credit crunch and higher fuel costs sent airfares surging, damping travel demand in a price-sensitive market. India's air-passenger traffic clocked its slowest growth in decades over the past few months.
The spat between the founders is escalating ahead of the renewal of the shareholder agreement in October. The existing pact gave Bhatia, who controls 38% of InterGlobe, and his InterGlobe Enterprises (IGE), significant controlling rights over the airline, including the appointment of top management and directors on board.
In a letter to the board members dated Aug. 5, Gangwal said the reports of peace between him and Bhatia are "false and misleading."
Gangwal said he will not vote in favor of a special resolution for changing the company's articles of association, unless the board curbed Bhatia and IGE from gaining more powers and a new policy on related party transactions is adopted.
Last month, the company's board, which currently has six members, decided to expand the number to 10. The new board structure proposed five seats for Bhatia and IGE, alongside four additional independent directors and Gangwal.
In his letter, Gangwal said the proposed board structure created "a large loophole that gives IGE group additional powers that they do not have today." Gangwal fears that the IGE would have enough powers to pass any resolution on its own, in the event of the resignation of an independent director.
The board has not worked out a resolution for the governance loophole in such a situation, he said. "Seeking shareholder approval for the new board size without closing this large loophole is governance negligence and tramples on the rights of minority shareholders."
The dispute between the founders turned public last month, when Gangwal wrote a letter to the Securities and Exchange Board of India, as well as the corporate affairs ministry, among others, alleging violations of corporate governance norms at IndiGo, and asking the regulators to step in. The SEBI had sought a response from the company by July 19, while the ministry of corporate affairs, too, asked for comments.
Shares of InterGlobe Aviation ended little changed in Mumbai trading on Tuesday, while the benchmark S&P BSE Sensex closed 0.8% higher.
--Dhanya Ann Thoppil