IndiGo promoters' spat: Rakesh Gangwal says he prefers short-term financial pain to seeing the airline falter

The escalating promoters spat at IndiGo has seen the share price of its parent, InterGlobe Aviation, plummet over 21 per cent in the past month. The stock declined as much as 17.54 per cent to touch a low of Rs 1,291 on the BSE on Wednesday, after co-founder Rakesh Gangwal alleged serious corporate governance lapses at the company in his 23-page letter to SEBI Chairman Ajay Tyagi. A day after seeing an erosion of Rs 6,462 crore in its market capitalisation, the stock continues to be in trouble - the share price fell further to Rs 1272.90 in the morning trade today. That's bad news for the country's largest carrier with a market share of 49 per cent.

But Gangwal, who owns a 36.68 per cent stake in the airline, would rather face this financial pain today than see IndiGo falter five or 10 years down the road. "The nation can ill afford IndiGo faltering. IndiGo is now very much intertwined with the economic well-being of the country," he told The Economic Times, adding that it the issue of poor corporate governance at InterGlobe Aviation is not corrected today, "down the road we could have a situation like what happened with some other airlines and other companies in India".

Gangwal's complaint letter to SEBI stated that even a "paan ki dukaan" (betel shop) would have managed matters with more grace. ""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," it read. According to him, the shareholders' agreement provides the other co-founder Rahul Bhatia - who along with his InterGlobe Enterprises (IGE) Group owns around 38 per cent stake in IndiGo - unusual controlling rights over the airline.

"Beyond just questionable Related Party Transactions [between IndiGo's parent and IGE Group], various fundamental governance norms and laws are not being adhered to and this is inevitably going to lead to unfortunate outcomes unless effective measures are taken today," Gangwal alleged, adding that the company has "started veering off" from the core principles and values of governance that made IndiGo what it is today. A copy of this letter has also been sent to Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman, Civil Aviation Minister Hardeep Singh Puri and Commerce Minister Piyush Goyal among others.

Even as SEBI has sought details from the Board of Directors of InterGlobe Aviation against Gangwal's complaint by July 19, the IGE Group has denied all allegations. In a detailed statement released on Wednesday, the latter claimed that none of the Group's entities had exploited related party transactions and had in fact treated IndiGo more favourably than other customers.

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According to Bhatia's company, at present there are related party transactions in four areas - real estate leased to InterGlobe Aviation, simulator training facilities, General Sales Agreements for limited foreign markets and crew accommodation at Accor Hotels - but as per unaudited numbers for 2018-19, such transactions accounted for a mere 0.53 per cent of InterGlobe Aviation's consolidated turnover. Furthermore, such transactions had been disclosed at the time of the IPO in 2015, post which many of them had ceased to exist while others have been renewed on an arm's length basis as part of the normal course of business.

Gangwal, nonetheless, is sticking to his guns, claiming that the market regulator should examine the EY report on questionable related party transactions that had been commissioned by the audit committee chairman in March. While Bhatia claims that the EY report did not find any substantive evidence to prove the allegations, except some procedural ones, Gangwal alleges that the report has not been shared with the full audit committee and the full board. "What the report supposedly says and what has now been admitted by the company are at odds on many issues and certainly arise above just so-called 'procedural irregularities'. This report is being used to claim that there are no real problems with related party transactions at IndiGo," Gangwal told the daily.

He firmly believes that even if a company has a good business model, it cannot survive in the long term without good corporate governance and a strong board. "Look at the nation - how many companies have got into trouble because of lax adherence to corporate governance and weak board oversight?" he posed, explaining why he decided to approach SEBI. According to him, IndiGo will emerge much stronger with good governance.

Sushmita Agarwal with PTI inputs

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