SEBI is examining whether the management deliberately misled shareholders or it didn’t know the true extent of the differences between Rakesh Gangwal and Rahul Bhatia.

SEBI probing to see if IndiGo deliberately misled investors about promoter spatKurush Pawar via Flickr (CC BY-SA 2.0)
Money IndiGo Friday, July 12, 2019 - 16:33
Written by  S. Mahadevan

The internal feud between the two co-founders, promoters and long-time friends Rakesh Gangwal and Rahul Bhatia of Indigo Airlines is not going away soon. After Gangwal wrote to the SEBI Chairman raising issues on governance in the parent company Indigo Aviation Limited, SEBI is now probing to see if shareholders were misled by the management downplaying the differences between the co-founders.

According to a Mint report, SEBI wants to know if the management deliberately misled shareholders or whether it was unaware of the true extent of the differences between the co-founders.

In his letter to SEB chairman, Gangwal raised issues regarding related party transactions (RPTs) to the extent of Rs 227 crore. He had also raised questions over the appointments of the Chairman of the Board and some independent directors. SEBI has asked Bhatia to respond by July 19.

These differences first came out in the open after they decided to take the legal route to reconcile different and relook at the shareholder agreement which gives sweeping powers to Bhatia’s InterGlobe Enterprises.

The ‘agreement’ being referred to here is one that was entered into between Rakesh Gangwal and Rahul Bhatia way back when they set out the airline operations that Bhatia and his holding company InterGlobe Enterprises Pvt. Ltd will have sweeping powers in running the affairs including in the appointment of the Chairman and the independent directors to the board. Rahul Bhatia says this came about because he and his holding company took the entire risk worth Rs 1,100 crore, though Gangwal with his equal 50% stake did not have to bear that risk.

The question now is if Ronojoy Dutta issued his statement with the full knowledge of the extent of the differences between the two promoter-directors. The issue before SEBI would be if Dutta knew but downplayed the differences, then it amounts to withholding information from the shareholders. He can escape action if it transpires, he only shared information he was privy to.

SEBI’s team will go into the other issue of RPT raised by Gangwal in his letter. Indigo’s compliance secretary has already appeared before SEBI.

On the face of it, the total value of related party transactions appear way below the threshold of 10% of the turnover and therefore does not merit much enquiry. However, this is not such a clean case as well, as there is a report by Ernst & Young that had detected some anomalies in Indigo’s RPTs. Again, SEBI will have to determine how much of these anomalies would have hurt the interests of the shareholders.

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