The ongoing tussle between the two founders of InterGlobe Aviation Ltd, which runs low-cost carrier IndiGo, took an ugly turn, with Rakesh Gangwal accusing Rahul Bhatia of corporate governance violations and seeking market regulator Securities and Exchange Board of India's (SEBI) intervention in the matter.
In a letter to Sebi chairman Ajay Tyagi, Gangwal alleged several violations at IndiGo including violations of corporate governance regulations, code of conduct, and appointment of senior management personnel.
It is to be noted that Gangwal, along with his affiliates (RG Group), owns nearly 37 per cent stake in InterGlobe Aviation, while Rahul Bhatia and his affiliates (IGE Group) holds around 38 per cent stake.
What did Gangwal's letter say?
Rakesh Gangwal has alleged that Rahul Bhatia holds controlling rights in IndiGo, which provides him significant influence over the decisions of the airline, including the appointment of the senior management and governance norms. "Bhatia has built an "ecosystem of other companies that would enter into dozens of related party transactions with the airline," Gangwal said in the letter.
He alleged that the airline "is at a watershed moment and has started veering off from the core principles and values of governance that made IndiGo what it is today".
In the letter, Gangwal said that "the governance matters have taken such a back seat at IndiGo due to the unusual rights available to the IGE Group in conjunction with the lack of diversity and paucity of independent directors in the board."
Here is the list of other allegations levelled by Gangwal against Bhatia.
- 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, which is controlled by the IGE Group, denied to allow an Extraordinary General Meeting of shareholders (EGM) and also refused to cooperate and provide the necessary information for conducting the EGM.
- Board decisions and resolutions on critical matters being implemented without basic governance protocols and laws being followed.
- IndiGo has since its inception had an "independent director" as its Chairman. However, the provision in the articles of association stating "The Chairman of the Board shall be appointed on the nomination of the IGE Group." has the real potential to take away the independence of the Chairman.
- Not having appointed an independent woman director, a requirement that SEBI gave time to the Company since May 2018 to comply with.
Gangwal sought SEBI's intervention directing the company to make necessary changes to the "unusual controlling rights" available to the IGE Group. He requested regulator's direction to amend the articles of association of the company to strictly follow the requirements prescribed by SEBI and to guide the firm to allow for the EGM resolution to be placed in front of all the shareholders of the company.
These rights include:
- Right to appoint 3 out of 6 directors of IndiGo.
- The Chairman of the Board shall be appointed on the nomination of the IGE Group.
- Right to nominate and appoint the Managing Director.
- Right to nominate and appoint the CEO.
- Right to nominate and appoint the President.
- A voting arrangement that requires Gangwal and his affiliates to vote alongside the IGE Group on the appointment of Directors.
Meanwhile, InterGlobe Aviation share price continued losing streak on Thursday, with investors loosing Rs 9,778 crore wealth in the last two trading sessions after the rift between two founders of India's largest airline became public.
On the Bombay Stock Exchange (BSE), the IndiGo shares closed trade at Rs 1354.85 apiece, down 3.07 per cent. During the day's trade, the stock tumbled 8.93 per cent to hit an intraday low of Rs 1,272.90 after opening lower at Rs 1,380.
Edited by Chitranjan Kumar