IndiGo's minority shareholders approach board, question deals and contracts

This story has been updated to incorporate later developments.

Minority shareholders of IndiGo, the largest airline in the country by market share, have approached the board of directors, alleging operational mismanagement in the company, according to sources close to the matter. These shareholders have questioned contracts and deals signed by the company, it is learnt.

This comes at a time when a rift has surfaced between the company’s promoters Rahul Bhatia and Rakesh Gangwal over strategy issues. Currently, law firms J Sagar Associates and Khaitan & Co are engaged in ironing out the differences between the two, a person in the know said. 

The deals struck for A320 Neo aircraft are among the issues red-flagged by the minority shareholders. IndiGo in 2011 had signed an order for 180 A320 Neos. The airline followed it up with an order for 250 of the same type in 2015.

Minority shareholders are of the view that the company is not sharing details of the A320 contract,” said one of the sources.

While IndiGo opted for these aircraft to bring in fuel efficiency, the induction hasn’t been smooth. The aircraft has faced multiple technical issues, which forced it to ground around 12 aircraft last year.

It is learnt that minority shareholders of IndiGo have alleged that they were kept in the dark about the company’s expansion plans and its strategy to keep the finances healthy.

A person close to the promoters, however, rubbished the claims saying no such complaint had been received. “The company is audited by KPMG—an auditor of global repute. Each and every decision is passed through the board. IndiGo’s corporate governance is of the highest standard,” the person said.

IndiGo didn’t respond to queries till the time of going to press.

Lawyers said moving the National Company Law Tribunal (NCLT) was not ruled out. Under the Companies Act, minority shareholders can approach the NCLT in case of oppression and mismanagement. This is largely in areas like misuse of funds or mismanagement of the company.

The company is also required to make adequate disclosures to minority shareholders. Meanwhile, the company is working out a strategy to appease these minority shareholders. Sources indicated that the company is planning to do due diligence on various contracts signed by the airline in order to prove there is no mismanagement.

Sources aware of the developments pointed out that despite differences between Bhatia and Gangwal, neither is willing to split the company. “IndiGo has always been a professionally managed company. Promoters are in no way connected to the day to day functioning of the company. The airline’s operations and growth plans will go as planned,” said a source close to the promoters.

According to a highly placed source, the shareholders’ agreement between the promoters is loaded in favour of Rahul Bhatia and it also gives him management control and the right to appoint board members. "Gangwal has a board position and is almost an equal shareholder but management control is vested with Bhatia," the person said.

Another source close to the board told Business Standard that only ‘’the Indigo board will decide and take a call on policy and corporate governance-linked issues, not individuals or /promoters.’’ He added that the differences between the two partners have been going on for at least two and a half years.

“The IndiGo board has taken cognisance of the matter,’’ a highly-placed source said on the promoters’ rift. He added that former president of the airline Aditya Ghosh too would be contacted for his inputs on the matter.

The differences between the promoters cropped up on management approach and hiring of executives but these were not serious enough to damage the company, another source said. IndiGo clarifies: The contents of the report are completely false and misleading. The minority shareholders of IndiGo have neither approached the board of directors of IndiGo, alleging any operational mismanagement, nor have any deals and contracts of IndiGo been questioned, as alleged in the report.



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