The simmering differences between the co-founders of IndiGo have erupted into a full-blown corporate battle, with
Rakesh Gangwal seeking the intervention of market regulator Sebi to resolve his “alleged grievances” and Rahul Bhatia calling on the board of airline’s holding company to resist attempts by the former to “damage” the company.
The “alleged grievances” are a reference to Gangwal’s concerns over violation of governance norms and related party transactions (RPTs) benefiting companies owned by Rahul Bhatia. Gangwal has also called on the board of InterGlobe Aviation, which runs India’s largest airline, to convene an extraordinary general meeting (EGM) of the shareholders.
Bhatia has responded to the EGM call by writing to the board that it is nothing but an attempt by Gangwal’s RG Group to dilute the control of his IGE Group under the guise of RPTs.
InterGlobe Aviation informed stock exchanges on Tuesday that its board received a letter dated July 8, 2019, from Gangwal informing the company that he has written a letter to Sebi, adding that the regulator has asked it to give a response by July 19.
In a 23-page letter, Gangwal wrote that beyond just questionable RPTs, various fundamental governance norms and laws are not being adhered to and this is inevitably going to lead to unfortunate outcomes unless effective measures are taken today. Corporate governance standards are collapsing at IndiGo and there are violations of various corporate governance regulations prescribed by Sebi as well as those of the company's code of conduct for directors and senior management, according to him.
Bhatia, on his part, informed the board 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 shareholder's agreement and the Articles of Association, which ensure implementation and enforcement of the IGE Group's controlling rights.
Gangwal and Bhatia, also the largest shareholders of the airline, recently sought legal help to settle their differences. Gangwal’s decision to approach Sebi shows the matter has not been resolved yet.
Bhatia and Gangwal, along with their families, each control stakes of slightly less than 40 percent in InterGlobe, giving them both a major say in its strategy and plans.
The differences centre on related-party transactions,
IndiGo CEO Ronojoy Dutta told CNBC-TV18 in a recent interview. Dutta cited the example of InterGlobe selling services to IndiGo, particularly accommodation in hotels that the parent company owns stakes. “It is a matter of how you deal with them that the two promoters are talking about now,” he said.
But far from resolving the issue, even Dutta has been dragged into the battle between the promoters. Gangwal took exception to his interview with CNBC-TV18 in which he said the RPTs with IGE Group are “an administrative issue and not airline related”.
“It is startling to hear that RPTs 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.
The article will be updated with comments from Gangwal, Bhatia and InterGlobe if they respond to requests from CNBC-TV18.
Gangwal, an American and an aviation industry veteran who spent years in senior roles at United Airlines and US Airways, has been a big factor in driving IndiGo's emergence as one of the fastest growing carriers in the world.
Bhatia, in turn, has been running things on the ground in India.
India's aviation sector has been shaken by the collapse of Jet Airways, which has sent travel prices soaring. Jet, once India's largest private carrier, was crippled by mounting losses.
IndiGo, SpiceJet and GoAir have been rushing to fill the vacuum left by Jet and gain control of its valuable slots.
IndiGo's fleet consists of more than 200 Airbus SE A320 and A321 narrowbody aircraft, along with just over a dozen ATR turboprops.
(With inputs from Reuters)