Co-promoter Gangwal wants expansion of IndiGo board, asks Sebi to intervene

The move is difficult to implement as it will need Rahul Bhatia's support

IndiGo co-promoter Rakesh Gangwal wants the company board to be expanded so that the number of independent directors goes up. Gangwal has also asked the Securities and Exchange Board of India (Sebi) to intervene and rewrite the Article of Association (AoA) to ensure that with 37 per cent stake he gets equal rights in the management of the company — a demand that the Rahul Bhatia camp says would be impossible to implement without 75 per cent shareholder support. 

Every listed public company must have at least one-third of the board as independent directors. Currently, IndiGo has six directors, of which two are independent — Chairman M Damodaran and Anupam Khanna. “To maintain a healthy corporate governance structure, there should be at least four independent directors who are selected independently and not by suggestion of the promoters,” said a person close to Gangwal. “This mandates a restructuring of the AoA to give equal rights to Gangwal,’’ the person added.

However, a person close to the other promoter Rahul Bhatia, who holds a 37.93 per cent stake, said the changes would imply the company has to pass a special resolution which would require 75 per cent of shareholders to support it. “With Bhatia holding more than 37 per cent, it’s practically impossible for such a resolution to be passed,” he pointed out.

The genesis of such a showdown between promoters of India’s largest airline lies in four related party transactions regarding IndiGo’s business office space, simulator training facilities, general sales contract and hotel for airline crews. 

The Gangwal camp argues that such contracts have resulted in Bhatia-owned Interglobe Enterprises (IGE) to benefit monetarily at the expense of IndiGo.

For instance the simulator contract signed with a Canadian company CAE was arbitrarily extended in 2013 for 15 years without a global tender, the person close to Gangwal said.

‘’When Gangwal objected, the reason given was that no other facility can accommodate IndiGo’s demand. There are 20,000 commercial aircraft flying across the world. Do all the crews get trained by CAE?” he asked.  
 

IGE has rejected such claims. “There is a provision to review the terms of contract after every five years in terms of pricing and other factors. In 2018, it was found that CAE was providing services to IndiGo at a much competitive price than it provides to other Indian carriers,” another source close to Rahul Bhatia said.

“Interglobe Enterprises has nurtured and supported IndiGo through its formative years and during its course of expansion by providing these services at a lower rate. IGE has ensured that IndiGo has received more favourable treatment as compared to other customers,” the company reiterated in a late evening statement.

The person close to Rahul Bhatia said Gangwal’s intention was to gain control because with current terms and conditions, it would be difficult for him to find an investor to buy his stake. “This is why Gangwal wants to rewrite the terms and conditions which is unfair because the control structure was accepted by Gangwal during inception and again during public listing because Bhatia took the risk of infusing capital which was more than Rs 1,000 crore.’’

A senior Sebi official said there’s little scope for the regulator to interfere on the AoA matter. “Sebi will primarily inspect if the related party transactions were done according to the norms at an arm’s length distance. If irregularities are found, only then can the independent directors be questioned,” said a senior government official.

But the Gangwal camp is not willing to give up the fight. Sources said  Gangwal has met Finance Minister Nirmala Sitharaman, and Sebi chief Ajay Tyagi in the last one week. “If necessary, we would go to the National Company Law Tribunal (NCLT),” the person close to Gangwal said.