Will Indigo EGM settle spat between co-founders for good?

With Tatas taking over Air India, Indigo had no option but to put an end to the internal bickering. Soon after the decision to call the AGM was announced, the shares of India's largest domestic airline jumped 4.5% on Tuesday. Investors anticipated an end to the two-year long public tussle between its two co-founders, India-based Rahul Bhatia and the US-based Rakesh Gangwal

With a domestic market share of 53.5% in October, IndiGo is by far the biggest airline in the country. Air India, which at 11.8% is the distant runner up, is expected to go through an overhaul early next year as the Tata group takes over the control.

Indigo, meanwhile, is collectively owned by the two promoters. They own 74.44% stake in it, with Bhatia owning 37.83% and Gangwal 36.61%.

Their dispute has so far not affected the operational performance of the airline, which has only gone from strength to strength. Its market share gains after the pandemic have proved it.

Now, the two promoters have called an Extraordinary General Meeting on December 30, after an arbitration order of the London Court of International Arbitration, which ruled in favour of Gangwal.

The meeting has been called to scrap a clause in the company’s articles of association (AoA) that gives the two owners the right of first refusal (RoFR) over the acquisition of each other’s shares. This would allow either side to sell or transfer shares to a third party without giving each other a notice.

The differences between the two sides became public in July 2019 when Gangwal sought market regulator SEBI’s intervention to address alleged corporate governance issues at the company.

The restrictions on the transfer of their shares were supposed to automatically expire in November 2019, that is four years from the listing of the airline. They, however, remained embedded in the Articles despite a shareholder agreement between the two sides expiring a month earlier.

The clause was not scrapped since the two promoters were locked in a bitter dispute over corporate governance. A resolution moved by Gangwal to vote on amending the Articles failed after Bhatia voted against it. 

Now, the resolution to amend the company’s Articles of Association is expected to pass smoothly, given that both the promoters have jointly called the shareholder meeting. There are speculations that after the resolution is passed, Gangwal may dilute his stake in the company. But we must also remember his words from 2019 when he said he was in for the long haul and had no desire to sell his holding.

While the overhang of the existing dispute will end soon, a change in Gangwal’s mind would add a new chapter to IndiGo’s history as this would mean the first significant change in its promoter holding in several years and a possible parting of ways between the co-founders.

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