IndiGo has put a new policy in place for related-party transactions which mandates competitive bidding for all such transactions between the airline and its parent InterGlobe Enterprises, several people aware of the development told CNBC-TV18.
“Now all related-party transactions, whether small or large, will be put up for competitive bidding process,” a person aware of the matter said.
If a related-party transaction exceeds Rs 2 crore then there will be a four-step process for its approval, sources said. At first, the company will need to appoint an outside expert in the area of that transaction. Secondly, based on the facts and competitive bids, the expert will submit a report stating the findings, advantages and disadvantages of the transaction to the audit committee. Thirdly, the audit committee will submit this report to the full board.
Finally, the full board will have seven days to submit their comments to the audit committee, which will then take a call in the best interest of the company based on management input, board comments and outside input.
The new related-party transaction policy can only be amended or diluted if the proposal to do so will have the support of all four independent directors of the board.
IndiGo board had approved a proposal to amend articles of association to increase the size of the board from six to 10 members, including four independent directors. The proposal was also approved by the company shareholders yesterday.
CNBC-TV18 sought comments from IndiGo and InterGlobe Enterprises and awaits a response to the queries.
IndiGo had told its shareholders at its 16th annual general meeting that all related-party transactions between the airline and promoter Rahul Bhatia’s InterGlobe Enterprises (IGE) are at arm’s length and in the best interest of the company.
In 2018-19, the related-party transactions between IndiGo and InterGlobe stood at Rs 150.12 crore or 0.53 percent of IndiGo’s consolidated turnover as compared to 0.50 percent or Rs 118.96 crore during 2017-18.
InterGlobe Enterprises owns Global Business Park in Gurugram, which houses the headquarters of IndiGo and hence the airline pays rent for this real estate to InterGlobe. InterGlobe, in partnership with Accor hotels, also owns Ibis and Novotel hotels so it takes part in bidding process for crew accommodation. RPTs between IndiGo and InterGlobe also take place in general sales agents for limited foreign markets and in the area of simulator training facility.
Over the last two months, the airline witnessed a bitter dispute between the two promoters, Rakesh Gangwal and Rahul Bhatia, over disagreements on corporate governance and related-party transactions.