Provisions in Articles of Association Become Hurdles for IndiGo Founders Truce

The feuding founders agree to expand the number of Board members from six to 10

By July 28th, 2019 AT 6:05 PM
Highlights
  • The new 10-member board of IndiGo will comprise of four independent directors in addition to Gangwal and five directors nominated by the Bhatia group
  • The two founders are still ironing out their differences

The fate of the spat between IndiGo founders now remains in the hands of the market regulator Securities and Exchange Board of India (SEBI). As an initial step, SEBI has sent a list of questions to the airline.

The main bone of contention between the IndiGo founders is an Articles of Association, which claimed to be framed in favour of Bhatia’s InterGlobe Enterprises (IGE). Articles of Association specifies the regulations for a company’s operations. It lays out in detail the ways by which the tasks will be accomplished within an organization, including the process for appointing directors and managing financial records.

Rakesh Gangwal pointed out to SEBI that the Articles of Association give some special powers to Rahul Bhatia’s IGE. He has sought to redraft the document.

Recently, IndiGo has increased the number of members on the Board from six to 10. It has also appointed a woman independent director and has mandated that the transactions of more than Rs 2 crores have to be approved by the Board of Directors. However, such actions were on the plate from last year, sources in IGE revealed to Moneycontrol.

The Shareholder’s agreement was first signed in 2005, and later, it was renewed in 2015 when IndiGo filed for IPO. It will expire this year. However, the Articles of Association will continue to remain valid.

The provisions in Articles of Association that primarily irked Gangwal were about IGE’s rights to nominate three of the non-independent Directors to the Board. Rahul Gangwal’s group can only choose one. Even after the recent expansion of IndiGo’s board members from six to 10, the number of non-independent Directors that IGE can nominate rose to five and Gangwal’s count remains at one. One of IGE’s nomination will be the Chief Executive Officer, a practice which did not exist earlier. CEO was not a part of the Board before.

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An article in Moneycontrol that quoted the sources claim another perspective of the story. Gangwal gets to remain the shareholding equal to that of Bhatia’s at 37%, and the operational control remains with Bhatia. This was agreed in Shareholder’s agreement in 2005 and later in 2015. IGE continued to invest in IndiGo, which has reached up to Rs 1,100 crores by 2010, while Gangwal’s investment remained Rs 15 crores. A $20 billion deal that IndiGo signed with CFM was said to be initially handled by Gangwal. Bhatia took over the deal when Gangwal’s stand in the matter took IndiGo dangerously close to a default. Gangwal’s ego in this matter could be a reason for the current spat, the article indicated.

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Ria is a lead news writer at Aviation Scoop. She writes from dawn to dusk, reads in the evenings, and draws at some ungodly hours. She loathes human interaction, and finds solace in the sweet, musky smell of old books, and rain. Find her on Twitter here - @rialakshman.

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