The public war-of-words between IndiGo's promoters, Rakesh Gangwal and Rahul Bhatia, has put the airline under the scanner of the government and regulatory authorities. While the Securities and Exchange Board of India (SEBI) was roped in when Gangwal sent its Chairman Ajay Tyagi a 23-page letter alleging serious corporate governance lapses at the company, the Ministry of Corporate Affairs (MCA) has also joined the act now.
Both SEBI and the ministry have directed IndiGo to submit crucial documents, including the EY report on questionable related party transactions that had been commissioned by IndiGo Chairman M Damodaran in January, The Economic Times reported. In addition, SEBI has also sought the shareholders' agreement. The regulator is examining whether the company had received shareholder approval for the unusual controlling rights that Bhatia enjoys over the airline, including the right to name its managing director, CEO and president.
EY was asked to study related-party transactions between IndiGo and firms affiliated to co-promoter Bhatia's IGE Group in the past five years. While the report is yet to be made public, Damodaran informed the board in March that it had noticed some "procedural irregularities" - although no "substantive irregularities" were found - and hence recommended setting up an internal committee to draft a set of protocols for such related-party transactions. The committee, comprising CEO Dutta and CFO Rohit Philip, among others, submitted its report to the board on April 4. But the board couldn't deliberate on it due to the escalating differences between the co-promoters.
While Bhatia and his InterGlobe Enterprises (IGE) Group own around 38 per cent of the airline, Gangwal and his affiliates own a 36.68 per cent stake. "All the shares are same (pari passu), but sometimes promoters want these kind of affirmative rights to appoint the chairman or 2-3 board members. But it has to be ratified by shareholders after a company is listed," a source close to the development told the daily. The shareholder approval had to come through a special resolution, and SEBI is trying to find out whether this process was actually followed. SEBI will also probe the role of directors for any violation of the securities laws.
Incidentally, in 2015, when IndiGo was planning to go public, it had mentioned in its prospectus that one of the promoters would have some affirmative rights, such as appointing the chairman and some of the board members. But the regulator had struck down these special rights back then since the rules did not provide for such dispensation. Following this, the promoters reportedly had to rework the shareholders' agreement and articles of association and drop the affirmative rights.
According to an MCA official, the legal position is that if any corporate agreement or memorandum or special resolution passed by the board is contrary to the Companies Act, the latter shall prevail. "You can give extra influence and control, but it should not affect corporate governance norms," the official told the daily. The MCA has directed IndiGo to respond point-by-point to the 10 issues raised by Gangwal.
Edited by Sushmita Choudhury Agarwal