HC rejects IndiGo co-promoter Gangwal's plea on directive to call for EGM

Sources said partner Rahul Bhatia may challenge London Court of Arbitration's order which instructs to relax provision of share transfer by promoters

IndiGo co-promoter Rakesh Gangwal’s petition seeking a direction to his partner Rahul Bhatia and his firm Interglobe Enterprises to conduct an Extra Ordinary General Meeting was disposed of by the Delhi High Court on Friday.

Gangwal’s petition was in reference to the ruling by London Court of Arbitration that the company’s Article of Association be amended to scrap a provision that gives the right of first refusal to both the promoters over each other’s shares in the company.

The court said that the arbitration order itself has allowed 90 days to implement the directions and pass any directions now as Bhatia may want to challenge the arbitration order.

"Even with an EGM being called under Section 100 of the Companies Act, Bhatia would not have been required to vote in favour of amending the articles due to the time period for compliance with the award and the right to appeal the award still running. With this plea rejected, Bhatia now holds all the cards - he can freely challenge the LCIA award, prevent any further attempts at enforcement of the award for now, as well as use the strength of his shareholding to prevent the passage of a special resolution for amending the articles in any EGM that Gangwal may consider calling under Section 100," said Mohit saraf, founder& Managing PartnerSaraf & Partner.

Gangwal who co-founded IndiGo in 2006 with Bhatia had also asked the court to ask Bhatia to jointly call for the EGM and support the resolution to amend the AoA.

Without Rahul Bhatia’s support, it’s impossible for Gangwal to pass the resolutions,’ as any EGM resolution requires support of 75 per cent shareholders. Interglobe Enteprises- along with Bhatia’s family owns 38.20 stake in IndiGo while Gangwal along with family trust holds 36.63 percent stake.

Gangwal, who is being represented by law firm Khaitan & Co, argued that EGM requires a notice of 21 days to shareholders. Hence, they wanted the court to direct the company to start preparatory works for the EGM.

The shareholders’ agreement between Gangwal and Bhatia, according to clauses in the agreement, was valid for four years after the IPO in 2015. A clause in the agreement conferred on the founders the right of first refusal for each other’s shares in case one of them wanted to sell. The agreement also contains a ‘tag-along’ clause, which stipulates that the other promoter has the right to join any share-sale transaction and sell his stake along with the one who is exiting. “If any member of either the RG Group or the IGE Group proposes to transfer its shares to a third-party purchaser (not being an affiliate) otherwise than on a stock exchange or by way of a pre-negotiated sale on a stock exchange, then the other group will have the right of first refusal and tag along right,” it says.

Rakesh Gangwal has to comply with the shareholders’ agreement and the Articles of Association, and its voting during general meetings is to be dictated by IGE.

On September 24, in a regulatory filing, IndiGo said it had received the final arbitral award, dated September 23, issued in the arbitration proceedings, by which the company was named respondent.

The differences between the promoters became public in July 2019 after Rakesh Gangwal wrote to the Secu­rities and Exchange Board of India, seeking its intervention to address corporate governance issues at the company. Bhatia’s IGE Group had rejected the allegations.