IndiGo promoters resolve 3-year dispute to prepare for fight ahead

It was curtains down on the nearly three-year-old spat between co-founders of India’s largest airline after shareholders overwhelmingly voted for amending articles of association (AoA) at a 48-minute meeting held on Thursday.

The extraordinary general meeting (EGM) was called for the removal of certain contentious regulations related to transferring, acquisition and other provisions on equity shares. More than 99.9 per cent of shareholders comprising promoters, institutional investors and the public voted in favour of the resolution. A few negatives were also polled from public shareholders, company filings with BSE showed.

Convened by InterGlobe Aviation, the parent company of IndiGo, the amendments allow promoters to sell or transfer shares to a third party without giving each other notice. Together with their related entities and individuals, Rahul Bhatia and Rakesh Gangwal control a staggering 77.4 per cent stake in InterGlobe Aviation.

Investors gave a thumbs up to the move as InterGlobe Aviation shares opened at Rs 1993 on Friday, up +0.74 per cent from the previous day’s close of 1978.45 on BSE.

Earlier, the two warring factions -- that of InterGlobe Enterprises (IGE) Pvt. Ltd and Rahul Bhatia – known as the IGE Group – and Rakesh Gangwal, The Chinkerpoo Family Trust and Shobha Gangwal – comprising the RG Group – had collectively requisitioned the shareholders’ meeting on November 25.

The move was largely prompted by Air India’s acquisition by Tata Sons, the planned launch of stock market bull Rakesh Jhunjhunwala backed Akasa Air and a high valuation that the IndiGo stock currently enjoys in the market, industry experts said.

According to sources, a serious divergence of opinion between Bhatia and Gangwal had first emerged over the choice of the right engine for the airline’s Airbus fleet before getting extended to other areas of the company’s day-to-day functioning. This, however, could not be independently verified.

The current dispute emanated from a shareholders agreement signed at the time of InterGlobe’s October 2015 listing between the promoters. Even as the agreement expired in 2019, the clauses remained in the AoA. Gangwal held that this gave unusual rights to Bhatia including the right of first refusal (RoFR), in the event the former wished to transfer or divest his shareholding.

Spat spills out in public

The dispute became public knowledge after Gangwal raised serious concerns regarding corporate governance ethics at the company with the stock market regulator, Securities and Exchange Board of India (SEBI).

Gangawal alleged that Bhatia had undertaken related party transactions (RPT) without the approval of the audit committee, lapses in the appointment of independent directors, powers of the Nomination and Remuneration Committee of the company’s board and the alleged misrepresentation in the firm’s Red Herring Prospectus (RHP) of at the time of listing.

At that time, Gangwal had even insinuated that a “paan ki dukaan” (betel shop) would have handled things far more professionally.

In a terse response, IGE had stated, “(The) paan ki dukaan has apparently done well and continues to do well. It is financially sound. It is well run and managed by a competent set of managers.”

In February 2021, InterGlobe Aviation settled a case of alleged violations of listing norms and lapses of corporate governance with SEBI by paying a Rs 2.10 crore penalty under a consent mechanism offered by the regulator. The company neither admitted nor denied any violation on its part.

The IGE and Bhatia had even invoked arbitration before the London Court of International Arbitration (LCIA) against Gangwal alleging breach of the agreement.

Although details of the award have not been disclosed to date, the ruling ostensibly favoured Gangwal who subsequently approached the Delhi High Court seeking its enforcement in October. The court, however, dismissed his plea.

“All along Bhatia and Gangwal have played really smart as even during the worst phase of the crisis they didn’t allow their egos to hamper the smooth functioning of the company,” a senior executive with another domestic carrier told Business Today.

“Despite growing bitterness, both partners kept channels of communication open to keep themselves informed of each other’s next move,” added another source.

Business Today has reached out to InterGlobe. The story will be updated as and when the company responds.

The company posted a net loss of Rs 1435.7 crore in the July-September quarter of the current financial year compared to a net loss of Rs 1,194.80 crore in the year-ago period even as capacity returned in terms of average seat kilometres (ASKs) and passenger yields. These gains were largely derived on the back of festive season travel.

As of date, the airline has a market cap of over Rs 76,000 crore and a 54.3 per cent share of the domestic traffic.