TURBULENCE AHEAD
It has been scarcely a couple of months since the shuttering of Jet Airways, and now a fresh controversy is roiling the aviation industry. Indigo Airlines, which succeeded Jet as the largest private player, is caught in an ugly spat between its promoters Rahul Bhatia and Rakesh Gangwal. The long-simmering conflict reached a crescendo on July 9 when Gangwal alleged serious governance lapses by Bhatia. Gangwal has now sought stock market regulator Sebi’s intervention. Sebi, in turn, has sought a response from InterGlobe Enterprises (IGE), the parent firm of IndiGo, even as its board will seek clarification from
Gangwal on his allegations at its meeting on July 19. Gangwal, along with his affiliates, holds a 37 per cent stake in InterGlobe, while Bhatia, along with his affiliates (IGE Group), owns 38 per cent. The rest is held by the public.
Gangwal has alleged the company has “started veering off” the core principles and values of governance. Even a “paan ki dukaan” would have managed matters with more grace, Gangwal said. He claimed his long friendship with Bhatia and a deep trust built over a decade made him give the latter “unusual controlling rights over IndiGo”, including the right to appoint three out of six directors, as well as the chairman, managing director and the CEO. However, Bhatia, he alleged, built “an ecosystem of other companies that would enter into dozens of related party transactions (RPTs) with IndiGo”. He has also questioned the InterGlobe board’s decision not to allow an extraordinary general meeting of shareholders. Moreover, IGE terms its chairman (M. Damodaran, former Sebi chairman) as an independent director, even though he is nominated by them, alleges Gangwal. “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,” he says.
Bhatia refuted the allegations. Even before the spat became public, in a letter to the company’s board on November 15, 2018, Bhatia had said he had offered that all the RPTs between the company and his IGE Group be subjected to an independent review by an external agency. Gangwal has not been able to cite a single, specific detail that demonstrates lack of probity in the RPTs with IGE Group entities, he says. He claimed the RPTs, which predate the company’s IPO in 2015, were disclosed in the prospectus. And that the audit committee adopted robust procedures in approving the RPTs, including seeking external expert advice, where necessary.
Bhatia did, however, admit that in a board meeting held on March 4, Damodaran had identified certain procedural irregularities in the RPTs and suggested process improvements. Following this, the board was to constitute an internal committee to examine the RPTs. In a statement on July 14, Bhatia alleged Gangwal was insidiously creating a controversy around corporate governance. ‘During the turbulent period of a fledgling airline, it was left to the IGE Group, as a responsible founder, to fend for IndiGo. Gangwal was missing in action and there were stages where he wanted to de-risk and pushed for the business to be sold,’ read a damning statement from IGE.
J.N. Gupta, former executive director with Sebi, wonders how Gangwal agreed to give disproportionate rights to Bhatia in making critical appointments. Moreover, the right given to Bhatia to appoint an ‘independent chairman’ is questionable. “If I nominate a person, how can he be independent? He is my nominee,” says Gupta. “As a result, Damodaran, a man with a great reputation in corporate governance, is in the centre of a storm for no fault of his.” Gupta said Sebi will decide if the matter needs to be investigated further. However, he finds no logic in the accusation that the board refused to hold an extraordinary general meeting (EGM) at Gangwal’s request. Had this really occurred, Gangwal could have convened the EGM and the company would have had to meet all expenses in this regard, Gupta says.
All the mud-slinging in public can only do damage to IndiGo’s reputation. It remains to be seen if the promoters will find a way to sink their differences or up the ante, and pursue the matter further with the regulators and the courts.
Gangwal alleges IndiGo has “started veering off ” the core principles and values of governance