The war of words between IndiGo promoters Rahul Bhatia and Rakesh Gangwal escalated further on Sunday. Bhatia's InterGlobe Enterprises (IGE) Group issued a statement defending its unusual controlling rights over the airline by alleging that Gangwal had not only typically limited his financial risks but was making insidious efforts to create an unseemly controversy about corporate governance.
"Even more significantly, during the turbulent period of a fledgling airline, it was left to the IGE Group, as a responsible founder, to fend for IndiGo. Gangwal was missing in action at that time and there were stages where he wanted to de-risk and pushed for the business to be sold," read the statement, adding that the IGE Group had consistently supported the start up "without in anyway diluting Mr. Gangwal's potential upside". This is the third statement released by the IGE Group in less than a week seeking to clarify issues and reject the allegations of questionable related-party transactions and violations of various norms made by Gangwal in his letter to SEBI last week.
The Group also provided details about investments made by the two sides, alleging that the risk ratio was almost 80:1 between itself and Gangwal at its peak. In 2005-06, a year after IndiGo received the "No Objection Certificate" from the Ministry of Civil Aviation, the IGE Group had invested in fully paid up equity of Rs 30 crore and fully paid-up non-convertible preference shares of Rs 69 crore. According to the IGE Group, while they were interested in investing more equity, "Gangwal wanted to limit his financial risk to no more than Rs 15 crore". And since the two promoters had agreed to hold just about equal equity, the paid up equity was limited to the then threshold of Rs 30 crore for a license to operate an airline in India.
Around this time, the airline was also in talks with Airbus to expand its fleet. Both parties had given a joint undertaking of support to IndiGo, wherein they undertook to invest at least $50 million (about Rs 200 crore back then) in the carrier, and maintain that investment until the delivery of the last aircraft. "As Gangwal was not going to take any further financial risk or obligation, IGE singly (though the undertaking to Airbus was a joint one) took the obligation to further invest up to Rs 110 crore in IndiGo so that taken together with the then existing investment of Rs 99 crore, the conditions placed by Airbus could be met," said the statement.
The Group added that Bhatia and his father, Kapil, had extended personal loans to the airline as well as personal guarantees to the banks to meet diverse financing needs such as aircraft acquisition, pre-delivery payments and working capital requirements. "Starting from financial year 2005-06 at a level of Rs 143 crore of personal guarantees by financial year 2009-10, the aggregate financial exposure of IGE, Kapil Bhatia and Rahul Bhatia was well over Rs 1,100 crore," they alleged, while Gangwal "was in safe harbour with equity exposure of less than Rs 15 crore" with no other financial exposure. The personal guarantees of the Bhatias continued to be in force till the end of the financial year 2012 and by that time IndiGo had an adequate balance sheet to support itself.
The Bhatia affiliate claimed that the arrangement between the co-promoters was transparent right from the inception - although both would hold about equal ownership but the IGE Group would bear the financial risk. However, Gangwal recently said that he made a mistake in agreeing to the rights of the IGE Group and that "times, circumstances and behaviour of promoters" has changed since 2015", when IndiGo went public. Against that backdrop the IGE Group questioned whether there was any "sanctity in agreements entered into by business people freely and at their own will".
"Do business ethics and morals permit a contracting party to walk away from its obligations at its convenience after it has enjoyed the benefits under an agreement and pretend to be a victim?," it posed.
(With PTI inputs)