IndiGo promoters' spat: Board to question Rakesh Gangwal on July 19

The board is also likely to ask Gangwal why he did not try and resolve the dispute at the board level
The board of InterGlobe Aviation, which operates IndiGo, will seek clarification from co-promoter Rakesh Gangwal on his allegations that independent directors failed to take ‘independent’ decisions on corporate governance lapses, at the board meeting on July 19. 

The IndiGo board is led by Independent Director M Damodaran, who is former Securities and Exchange Board of India (Sebi) chairman. Economist Anupam Khanna is the other independent director. The board meeting has been scheduled for July 19 to take into account the June quarter results. Apart from co-founders Gangwal and Rahul Bhatia, the board includes Rohini Bhatia and Anil Parashar — all non-executive, non-independent directors. 

The board is also likely to ask Gangwal why he did not try and resolve the dispute at the board level, but chose to make the differences public. People representing Gangwal said that considering the board would raise these issues, the response was likely to be that it was done for the larger good of improving corporate governance of the company. 

“There is no doubt there has been erosion in shareholder value, and Gangwal and his family — with 37 per cent — have also taken a big hit. But the core issues which Gangwal has raised has not got any substantial response so far from InterGlobe Enterprises (IGE, Bhatia’s holding company),” a person pointed out. In a letter to Sebi on July 8, Gangwal had alleged that IndiGo was not following the code of conduct and was not conforming to governance standards. He had also raised questions on related-party transactions by Bhatia. 

The person said while there is a provision of penalty under Sebi regulations for eroding shareholder value, the regulator also provides adequate protection to whistle-blowers who report lack of governance in a listed entity. 

“If the board says this should not have been done because the stock price has been impacted in the near term, does it mean nobody should raise issues about corporate governance because that will impact the stock price,” the person asked.

Gangwal says: Board not independent 
  • IndiGo independent directors failed to take independent decisions 
  • Lack of independent directors on board
  • No woman independent director on board
  • IndiGo board to seek Rakesh Gangwal’s reply on allegations
  • Board may seek independent audit on Gangwal’s expenses billed to company 
 “If wrongdoings of an organisation are kept under wraps, it can lead to brand destruction and financial losses,” said the Gangwal camp. 

Gangwal in an interview with Business Standard last week said he had written to Sebi to change the clause in the articles of association, which binds him to vote in support of IGE Group’s choice of the firm’s executives, including chief executive officer, president, and chairman, despite him owning equal stake. “I am not comfortable anymore with that clause, which I had agreed to in the past. I would want a change,” Gangwal had said. 

However, IGE Group in a statement on Sunday said that these clauses, which give powers to IGE Group, are because during the inception of IndiGo, Gangwal had wanted to limit his financial risk to Rs 15 crore. It further added that Rahul and his father Kapil Bhatia made most of the investments in the airline, extended personal loans to IndiGo and personal guarantees to banks for diverse financing needs of IndiGo, such as pre-delivery payments, aircraft acquisition, and working capital requirements. “By 2009-10, the aggregate financial exposure of IGE, Kapil and Rahul Bhatia was well over Rs 1,100 crore, while Gangwal was in safe harbor, with an equity exposure of less than Rs 15 crore,” said the statement. 

The board will also take a decision on whether to call for an external audit of Gangwal’s personal expenses, which were billed to the company. Bhatia’s June 12 letter to the board of directors referred to the airline footing Gangwal’s expenses for filing US tax returns. “Gangwal raised an inane demand for some sort of tax filing support to be provided to him by the company, free of cost, for all times to come,” Bhatia wrote. 

When contacted, a source close to Gangwal said a US citizen owning 10 per cent of a company in a foreign country is eligible for seeking reimbursement for the expense and it is also part of the shareholders’ agreement between the two promoters. According to the rules, a US citizen has to submit financial details of the company, according to the US accounting standards. “According to the shareholders’ agreement, the company had to provide this support till 2019. The tax filing can be done, saying the company refused to give the required data. It would cost him a little money, but that’s not a big problem,” the person said.


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