An aircraft about to land. (Source: BloombergQuint)

IndiGo Promoter Dispute: Gangwal’s Allegations A Red Herring, Bhatia Says In Earlier Letter

IndiGo promoter Rakesh Gangwal’s allegations of “questionable” related party transactions between parent InterGlobe Aviation Ltd. and co-promoter Rahul Bhatia is nothing but a “red herring”, a letter written by Bhatia to the airline’s board and company secretary last month said.

“It should though be remembered that at no stage has Gangwal cited a single instance where any undue advantage has been shown to have been taken by any IGE Group (Bhatia’s firms) entity in any RPT. Not a whisper,” Bhatia’s letter dated June 12, after Gangwal’s attempt to convene an extraordinary general meeting, said. “EY’s review did not reveal any such instance.”

The letter is part of a number of documents released by InterGlobe on the stock exchanges—that go back till October 2018—in relation to the conflict between the promoters. The latest letter, written by Gangwal to the Securities and Exchange Board of India, listed out instances of corporate governance lapses at the airline asking the regulator to step in and resolve grievances. Another letter to the shareholders has made a case to convene an EGM, an attempt Gangwal made in May as well which was voted down at a board meeting on June 12.

Bhatia, in his letter, said that Ernst & Young was appointed to review the related party transactions in force for the last five years, which was decided at a board meeting on March 4. IndiGo Chairman M. Damodaran had earlier said that the EY report did not find any substantive irregularities except certain procedural ones.

“Had EY’s review disclosed that any RPTs were not at arm’s length or not in the ordinary course of business, that would have been highlighted,” Bhatia’s letter said. “From the IGE Group’s perspective, it is imperative that no contracting entity from its Group should take undue advantage and the pricing and other terms and conditions must be completely on an arm’s length basis. The fact is that the company has received the most favored treatment in each RPT.”

Gangwal’s stance as a “crusader of corporate governance” is only a diversion from his real intention, Bhatia alleged. “The real objective of the RG Group (Rakesh Gangwal group) is neither to investigate RPTs nor to seriously think about developing robust procedures,” Bhatia’s letter said. “It is to dilute the control of the IGE Group and to absolve the RG Group of its obligations under the AoA (Articles of Association), and indeed malign the image and reputation of the IGE Group.”

Bhatia accused Gangwal of creating alternate facts after having said nothing about the RPTs for 13 years.
“So, here is a man who:
(i) took full advantage of t he situation and the opportunity offered to him 14 years ago, when he was generously allotted 50% equity;
(ii) did not mind that the IGE Group was taking the entire economic risk, which at peak exposure (between redeemable preference shares, unsecured loans, and personal guarantees) was in excess of Rs 1,100 crore (almost six folds the IGE Group's contractual obligation of Rs 200 crore in the understanding with Mr Gangwal);
(iii) happily agreed to the fundamental proposition that the IGE Group will have control; (iv) obliged himself to support the IGE Group in maintaining control through a voting rights agreement embedded in the SHA and in the AoA of the Company;
(v) with great delight (since he was going to make a ton of money) he actively participated in the IPO -at which stage he once again agreed that the IGE Group would retain control - a disclosure made in the prospectus;
(vi} did not raise for 13 years a whisper against any RPTs;
(vii) year after year, signed and approved annual accounts without raising any objections;
(vii) now at his conveniences dismisses as “unusual" the controlling rights of the IGE Group which are part of the fundamental architecture on which the company was founded;
(viii) shied away from taking a position on the board of a start-up being scared of liability in a highly regulated sector;
(ix) now claims to be a guardian of corporate governance.
Alternate facts are easy to construct. Truth hurts.”

Also read: Full Text: IndiGo Promoter Gangwal’s Letter Seeking SEBI Intervention To Resolve Grievances  

For the rest of the attachments and documents, see the full exchange filing:

IndiGo Full Exchange Filing.pdf

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