Another boardroom battle is brewing at the country’s most successful airline, Indigo. This is between promoters Rakesh Gangwal and Rahul Bhatia. Gangwal, who alleges governance violations by Bhatia has now taken his fight to the Securities and Exchange Board of India (SEBI) writing a letter alleging violation in governance in the company’s management under Bhatia.
Gangwal alleges that the company is steering away from its core principles and values of governance and reportedly said that even a "paan ki dukaan" (betel shop) would have managed matters with more grace.
The airline is run by Bhatia through his holding company InterGlobe Enterprises Pvt. Ltd (IGE). The issue however lies in an agreement entered into between Rakesh Gangwal and Rahul Bhatia as equal shareholders holding 50% stake in the airline.
According to Interglobe Aviation Ltd’s articles of association (AoAs), Bhatia has a sweeping power in IndiGo such that shareholders and the company’s board cannot take any decision related to control, business transactions, or appointment of directors or key managerial personnel, without the approval of the Bhatia-controlled InterGlobe Enterprises, a Mint report states.
It also gives Bhatia the power to Veto any decision taken by Gangwal.
In the letter addressed to SEBI chairman Ajay Tyagi, Gangwal alleged that there have been violations at IndiGo with regards to related-party transactions, appointment of senior management personnel, directors and the chairman. The current Chairman is former SEBI Chief M Damodaran and Gangwal alleges that the sweeping rights given to Bhatia compromises the independence of the chairman.
SEBI has, on its part, asked the company to reply to the charges raised by Gangwal in his letter to the SEBI Chairman, Ajay Tyagi. The time given to respond is till July 19.
The other issue which figures predominantly in Gangwal’s letter is with regard to the appointment of directors, the Chairman and then designating them as independent directors. Gangwal claims while he has no issues with Damodaran’s decision making he is questioning the arbitrary manner in which Bhatia is appointing directors and designating them as independent. Gangwal is questioning the very voting arrangement within the board which requires him to vote along with IGE and not oppose any appointment.
Experts also question the 2005 shareholder agreement between Gangwal and Bhatia and say such agreements don’t work in favour of all the shareholders of a company. It will be more in the nature of impropriety rather than flouting any legislation.
Denying allegations, Bhatia points out that Gangwal has been signing the balance sheets of the company year after year without raising any issue of related party transactions. He says no irregularity has been cited yet.
“Gangwal 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 ₹1,100 crore,” Mint quotes Bhatia as saying in a letter.