IndiGo promoters' war reaches Sebi: Rakesh Gangwal raises governance issues

IndiGo, India’s largest airline, is facing its worst crisis as promoters Rahul Bhatia and Rakesh Gangwal have made serious allegations against each other, forcing the Securities and Exchange Board of India (Sebi) to intervene. 

Bhatia and Gangwal, who has brought charges of lapses in corporate governance, together hold more than 70 per cent in the company and IndiGo’s success has often been credited to their synergy.

Gangwal, who holds 36.68 per cent, has sought permission to hold an extraordinary general (EGM) meeting, alleging that the company has participated in objectionable related-party transactions (RPTs) and has not complied with corporate governance standards.

He has said Bhatia-owned InterGlobe Enterprises (IGE), which has greater control over the company, has misused its powers to enter into RPTs with IndiGo.

Bhatia has denied the charge, saying that the Companies Act gave the powers to the board of the company to decide its functioning.
 

In a 23-page letter to Ajay Tyagi, chairman, Sebi, with a copy to Prime Minister Narendra Modi, Gangwal wrote besides questionable RPTs, fundamental governance norms and laws were not being adhered to and this would lead to “unfortunate outcomes” unless correctives were applied. Corporate governance regulations prescribed by Sebi as well as those of the company's code of conduct for directors and the senior management have been violated, according to him.

“We are big believers in the long-term potential of IndiGo and its business and operational model. However, we also firmly believe that IndiGo can realise its true potential and be a world-class company only if it has a world-class business and operational model as well as world-class governance standards,” Gangwal said.

RPTs relate to deals IndiGo has entered into for the hotel accommodation of its crew, simulators for crew training, and the office space the airline uses in the country. 

“It is startling to hear that such transactions between the company and IGE Group are administrative issues and not an airline issue … We sincerely hope that the CEO, who was nominated by the IGE Group but not classified as a ‘nominee CEO of the IGE Group’, is not in some way conflicted on this issue,” Gangwal wrote in his letter.

Bhatia has written to the board, saying the allegations were nothing but an attempt by Gangwal to dilute the control of IGE Group. “Related-party transactions issues have an underlying context. And that is, the real motivation and intent of the RG (Rakesh Gangwal) Group. It has now more clearly emerged that the real agenda of the RG Group is to dilute and diminish the controlling rights of the IGE Group and to relieve itself from its obligations under the Shareholders' Agreement ("SHA") and the Articles of Association ("AoA") which ensure implementation and enforcement of the IGE Group's controlling rights,” Bhatia wrote.

According to Bhatia, Gangwal wants to change two clauses in the agreement giving the powers to him (Bhatia) to take decisions including appointing the chief executive officer and president of the company. Bhatia said Gangwal had entered into such an agreement when the company was set up and his firm was taking all the risks, but now was trying to renege on those terms.

Bhatia said when Gangwal raised the issues in March, the board had appointed consultancy firm EY to look into all such transactions, but it found no irregularities.

(With inputs from PTI)