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Are the promoters of advertising agency Rediffusion DY&R in need of a spot of good luck? Probably. For the first time in its three-decade old existence, Rediff is embroiled in a controversy involving its four partners - Ajit Balakrishnan, Arun Nanda, Dentsu and Young & Rubicam.

Perhaps, it's feng shui and the hope of creating better vibes that has made Nanda shift back to his old desk at the Sterling Centre in downtown Mumbai.

But it's questionable whether that is going to change things for the Indian partners "" chairman and managing director Nanda, 60, and managing director Balakrishnan, 55. The duo hold 60 per cent of Rediff, and the other two partners have a 20 per cent stake each. Nanda and Balakrishnan's positions appeared unshakable "" until now, that is.

The first problem is that Martin Sorrell's WPP-owned Y&R now wants to take a bigger stake in Rediff in line with what is happening in other parts of the world.

Elsewhere, Dentsu and Y&R have altered their relationship so that Y&R has taken a 67 per cent stake and Dentsu 33 per cent in all DY&R companies. This has happened everywhere except on Dentsu's home turf Japan and Australia.

The trouble surfaced when Rediff decided it wanted to go in for an Initial Public Offering (IPO). Y&R's legal counsel DSK Legal immediately filed a petition to have the extraordinary general meeting (EGM) which was to be held on Tuesday, deferred to April 21.

The petition alleges that the promoters aren't following the rules and that they must have an 80 per cent vote to pass a special resolution for holding an IPO. Also, it says the promoters were seeking to take management control.

First a spot of background. In 1994, when Rediff tied up with DY&R, both the foreign partners picked up 20 per equity each. The equations changed in 1999, when Dentsu and Y&R altered their equal partnership relationship globally.

In return for diluting its shareholding, Dentsu was given the go ahead to set up independent operations in different parts of the world. Since then, Dentsu has spread its wings in China, Korea, Taiwan and Malaysia.

A year later, Sorrell acquired Y&R. And in keeping with the global change, he is believed to be pushing Y&R to increase its 20 per cent stake to 26 per cent in Rediff. And this is something that Rediff's original promoters "" Nanda and Balakrishnan "" are hell bent on blocking.

It's the implications of this additional 6 per cent transfer of shares from Dentsu to Y&R in Rediff, which forms the crux of the controversy.

Once Y&R owns 26 per cent in the firm, under the Companies Act, it will have the power to veto the board on special resolutions like decisions on commencement of a new business or an IPO.

Legal experts say that any special resolution requires a two-third board approval. At the moment, the seven-member board has four Rediff nominees including lawyers Suresh Talwar and Sunil Phatarphekar. Yasuo Yoshitome is the DY&R representative with F Oshima representing Dentsu and Stephen Gardner as the Y&R nominee.

If Y&R increases stake, it will have two representatives with only one from Dentsu. So even as Balakrishnan and Nanda will continue to be majority shareholders, they will have little power to decide the future of the agency they set up together in 1973, since every new business venture will require board approval.

"Perhaps they (Y&R) now feel that they'd like to increase their investments in India, with so many positive things happening in the Indian market," says an industry source.

There is also a belief that Balakrishnan and Nanda are uncomfortable about Y&R inching closer to their individual 30 per cent share.

Says an industry source, "It probably is an emotional and ego issue for both of them since they have nothing to do with the agreement between Dentsu and Y&R yet it involves their company."

In the case of joint venture partners wanting to pull out, the first right of refusal usually goes to the other partners. It is possible, say lawyers, that Rediff's shareholder agreement has no such clause.

The entire controversy, broke out in mid-January when the board met to discuss the agency's future, says people in the know. According to them, Rediff has been considering acquisition options for some time.

Some big names being bandied around and a Rediff manager says that there are four agencies up for grabs. Says an industry source, "Assuming that they are even considering acquisitions, they will need capital for that kind of expansion."

Logically, in order to raise capital, there would be three or four options before the board "" an IPO, selling out to either Dentsu or Y&R or buying out both the joint venture partners.

While it is unclear whether the board considered the last three options, it is probably where the IPO came in. Enam Financial, was the merchant banker making the presentation about the IPO and what it could mean for the entity.

Rediff is among the top five ad agencies in the country. "It needs size in order to be competitive," says a senior adman. It acquired Everest Advertising in 1999.

Now, this is exactly the route that Sorrell has been pursuing in India. Today, with J Walter Thompson, Ogilvy & Mather, Contract, Bates, Red Cell, RMG David and Initiative Media under its belt, the WPP agencies together account for 50 per cent of the country's Rs 10,000 crore domestic advertising industry.

No wonder Rediff is keen on an IPO. At the same board meeting, five out of the seven board members voted for an in principle approval of the IPO while Y&R's Gardner walked out before discussions could begin. In fact, the company also increased the authorised capital from Rs 13 lakh to Rs 11 crore, in anticipation of the IPO.

Y&R is reportedly unwilling to consider the IPO without the resolution of the transfer of share issue. "Until and unless, the issue is resolved at the next EGM, no decision on the IPO will happen," says a merchant banker.

If however, all the parties reach an amicable solution, the IPO is expected to be in September. If that happens, Rediff will be the first Indian advertising agency to be publicly listed.

There is also a chance that if they get a good price, the promoters may cash out. And what if either Dentsu or Y&R pull out? If that happens, industry sources say it shouldn't affect Rediff much as less than 20 per cent of its business comes from DY&R, the big ones being Colgate and Citibank.

Already last October Dentsu set up two outfits "" Dentsu Communications to handle Toyota and Marcom to drive Honda. Worldwide, it has a 15 per cent stake in Publicis, which has acquired Saatchi & Saatchi and Leo Burnett.

What eventually happens will depend entirely on the next EGM and whether Nanda and Balakrishnan can talk their way out of this predicament.

Both will also have to get used to a change in the relationship if the transfer of shares happen. And they'll need a lot more than feng shui to come out victorious in this battle.