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The IndiGo Promotors Feud
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The IndiGo Promotors Feud

Facts relating to the feud

  1. Rakesh Gangwal owns 37% shares of IndiGo as compared to co-promotor Rahul Bhatia, who along with his affiliates, owns 38%.
  2. The ongoing feud between the promoters of Indigo has taken a serious turn as one of the promoters seeks SEBI’s intervention in this matter. 
  3. Mr Gangwal has flagged serious corporate governance lapses at IndiGo, in his letter addressed to the SEBI.
  4. The Shareholder Agreement is the root cause of conflict between the promoters. 
  5. This Agreement between the promoters grants Mr Bhatia certain unusual controlling rights that are allocated and exercised through the IGE Group(an affiliate owned by Mr Bhatia). 
  6. Mr Gangwal alleges that this is the main cause as to why governance matters have taken such a back seat at IndiGo. 
  7. Mr Gangwal has requested SEBI to probe into and ask the Company to make necessary changes to the unusual controlling rights available to the IGE Group.

Issues raised:

  1. Those mentioned above unusual controlling rights permit the IGE Group, a minority shareholder, significant influence over the decisions of IndiGo.
  2. Mr Bhatia organised for different companies to enter into various Related Party Transactions (RPT) with IndiGo.  An RPT is a business arrangement between two entities who share a pre-existing relationship. It is not uncommon for companies to seek the services of parties they are acquainted with. Such transactions are completely legal but hold the potential to create a conflict of interest. Hence, these RPT’s should only exist if they are in the best interest of the Company.
  3. Under these questionable RPT’s various fundamental governance norms and laws are not being adhered to as they are not approved by the Audit Committee
  4. Board decisions and resolutions on critical matters were being implemented at IndiGo without basic governance protocols and laws being followed. 
  5. Mr Gangwal has accused IGE group of taking away the authority vested by SEBI to the Nomination and Remuneration Committee NRC} for identifying persons who may be appointed in senior management. This was done through a Board resolution that gave the IGE Group the right to select these candidates.
  6. IndiGo has since its inception had an ‘independent director’ as its Chairman. However, the provision in the Articles of Association stating "The Chairman of the Board shall be appointed on the nomination of the IGE Group" can take away the independence of the Chairman completely.
  7. The Company has not appointed an independent woman director, a requisite that SEBI gave time to the Company since May 2018 to comply with.

SEBI’s Intervention

  1. The government wants SEBI to intervene and inspect the role of all the board members and every entity associated with the two main promoters: Rakesh Gangwal and Rahul Bhatia, and to take strict actions for all the wrongdoings.
  2. SEBI has been probing into this matter since the feud between the two promoters have surfaced as there was an indication of violations relating to corporate governance, disclosure regulations, fair market trade and insider trading rules.
  3. In relation with the above scrutiny, the SEBI has summoned IndiGo’s company secretary Sanjay Gupta.
  4. SEBI is also investigating into whether the InterGlobe Aviation Chief Executive Officer- Ronojoy Dutta, downplayed the tussle between the promoters.
  5. SEBI has sought details from IndiGo’s parent company, InterGlobe Aviation in relation with alleged lapses. The Company had to reply to the letter composed by Mr Gangwal, comprising of the above-mentioned issues, by 19th July 2019.
  6. The Company has submitted its response to the letter by Mr Gangwal and the responses provided by the company are merely defending the decisions taken by Mr Bhatia and the IGE Group. Mr Bhatia has claimed that his rivals are hiding behind ‘sources’ and spreading a ‘false narrative’ about this dispute.
  7. Both SEBI and the Ministry of Corporate Affairs (MCA) have directed IndiGo to submit crucial documents, including the EY report on questionable RPT that had been commissioned by IndiGo Chairman in January. 
  8. In addition to the above documents, SEBI has also sought the shareholders' agreement. The regulator is examining whether the company had received shareholder approval for the unusual controlling rights that Mr Bhatia enjoys over the airline, including the right to name its managing director, CEO and president.  

Settlement in the process?

The promoters have reached a truce of some sorts. The Board of directors have decided to amend the Articles of Association to expand the size of the company’s board to 10 from the current 6 and will include an independent woman director, as a measure to address some of the concerns raised by Gangwal. However, despite this amendment, there is still a long way to go for a settlement.

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