An IndiGo aircraft takes off in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

IndiGo’s Rakesh Gangwal Accuses Rahul Bhatia Of Questionable Transactions, Governance Violations

After months of speculation over the reasons for a rift between IndiGo Airline’s long-standing promoters, it now emerges that Rakesh Gangwal has accused co-promoter Rahul Bhatia of questionable related party transactions, and violations of governance regulations and the company’s code of conduct.

BloombergQuint had reported on this in May identifying related party transactions at the core of the dispute. The rift was first reported by ET Now.

In a letter addressed to Securities and Exchange Board of India officials and copied to Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman and several other ministers, Gangwal, who owns 37 percent in the airline’s parent company InterGlobe Aviation Ltd. has listed several allegations against his co-promoter Bhatia, who owns 38 percent of the airline company.

These include, as mentioned in Gangwal’s letter filed with the stock exchanges:

  • Violations of various corporate governance regulations prescribed by SEBI and violations of the company’s code of conduct for directors and senior management.
  • The board decision to disallow an extraordinary general meeting despite a split vote. The EGM was requisitioned by Gangwal. The board also refused to provide necessary information to the requisitionists to conduct the EGM themselves.
  • Board decisions and resolutions on critical matters being implemented without basic governance protocols and laws being followed.
  • A board resolution now gives the Bhatia group (IGE Group) the right to identify and screen candidates for managing director, the chief executive officer and president of the company. This dilutes the power of the nomination and remuneration committee as laid down by SEBI.
  • The Bhatia group nominates the chairman and it has been common practice at IndiGo that a single person is recommended to the board. This raises questions regarding how such an individual can then be designated “independent”. IndiGo has since its inception had an independent director as chairman which allows it to appoint fewer independent directors to the board.
  • Not having appointed an independent woman director, a requirement that SEBI gave time to the company since May 2018 to comply.

The current chairman at InterGlobe is M Damodaran, former chairman of SEBI, who serves as independent director. Anupam Khanna is the second independent director on board. Besides Bhatia and Gangwal, Rohini Bhatia and Anil Parasher are the other directors.

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

Gangwal has sought an extraordinary shareholder meeting in which he proposes shareholders vote on a resolution to enforce the company’s code of conduct, including on related party transactions, for directors and senior management.

I have vigorously attempted for almost a year to persuade the company to shore up its governance standards, and all my attempts have been thwarted by the IGE Group.
Rakesh Gangwal Letter

How It All Went Wrong, According To Gangwal

In the letter Gangwal recounts how the airline was founded and why he entered a shareholders agreement that gave Bhatia controlling rights. These rights include:

  • To appoint 3 out of 6 directors of IndiGo.
  • That requires that "The Chairman of the Board shall be appointed on the nomination of the IGE Group ... "
  • To nominate and appoint the managing director.
  • To nominate and appoint the chief executive officer.
  • To nominate and appoint the president.

He says this was based on “a deep trust built over a decade-long friendship and with no desire on my part to have any meaningful control of the company...”.

But Bhatia used the rights to build an “ecosystem of other companies” the letter said.

I hadn’t contemplated that over the years, Mr. Bhatia would start building an ecosystem of other companies that would enter into dozens of related party transactions with IndiGo. We are not against RPTs as long as proper checks and balances exist and such RPTs are in the best interest of the Company.   
Rakesh Gangwal Letter

And though the shareholders agreement terminates in November many of these rights survive as they have been embedded in the company’s articles of association, including the provision that Gangwal and his affiliates are to vote alongside the IGE Group on the appointment of directors.

Gangwal has requested SEBI “to look into and, if thought fit, ask the Company to make necessary changes to the unusual controlling rights available to the IGE Group, a minority shareholder with about 38 percent shareholding”.

In closing, we recognise that there are influential and powerful people on the company’s board who will use their position to influence the outcome of the campaign that the RG Group has embarked upon. Their biggest arguments to downplay the issues will be that these are minor “procedural irregularities” and the company is addressing them. However, we take comfort in the fact that no one is above the law and India is changing for the better.
Rakesh Gangwal Letter

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