InterGlobe Aviation Ltd’s co-founder, Rahul Bhatia, has claimed that he bore most of the financial risk to grow the once fledgling airline, while his estranged partner, Rakesh Gangwal, restricted his investment to less than 15 crore, justifying the wider powers vested on him to run IndiGo, India’s largest airline.

“Mr. 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. However, the IGE Group went ahead to continue to support the start up without in anyway diluting Mr. Gangwal’s potential upside," IGE Group said in a statement on Sunday. The risk ratio was almost 80:1 between IGE Group and Gangwal at one time, the statement said.

The latest statement from Bhatia-controlled InterGlobe Enterprises Pvt. Ltd (IGE Group) follows Gangwal’s letter to the markets regulator last week, seeking its intervention to curb alleged corporate governance violations by Bhatia at IndiGo.

IGE Group claimed that Rahul Bhatia and his father, Kapil Bhatia, extended personal loans to IndiGo and personal guarantees to banks for diverse funding needs of the airline such as pre-delivery payments, aircraft acquisition and working capital requirements.

“Starting from financial year 2005-06 at a level of 143 crore of personal guarantees by financial year 2009-10, the aggregate financial exposure of IGE, Mr. Kapil Bhatia and Mr. Rahul Bhatia was well over 1,100 crore (consisting of equity, non-convertible preference shares, and guarantees) while Mr. Gangwal was in safe harbour with equity exposure of less than 15 crore; with no personal loans or guarantees or any other financial obligations for IndiGo," it said.

“While the IGE Group would have invested more equity but given that Mr. Gangwal did not have the appetite to invest more, IndiGo’s paid up equity capital was pegged at 30 crore, the minimum required by regulations."

Text messages sent to Gangwal on Sunday didn’t yield an immediate response.

In an 8 July letter addressed to the Securities and Exchange Board of India (Sebi), Gangwal alleged several violations at IndiGo, including those pertaining to related-party transactions; and appointment of senior management personnel, directors and the chairman, who has always been an independent director by convention. Bhatia has denied these allegations. Sebi has sought a reply from IndiGo by 19 July.

Responding to Gangwal’s allegations pertaining to related-party transactions (RPT) at IndiGo, IGE Group said in a statement on 12 July that IndiGo chief executive Ronojoy Dutta had accepted the responsibility for installing robust RPT processes and that a committee headed by him was given four months to make its recommendations. “Given the flow of deliberations at the meeting, no one asked for the report to be tabled and Gangwal agreed to the suggestions and offered to share a template of the process for dealing with ongoing and future RPTs," said the 12 July statement by IGE Group.

IGE Group on Sunday said Gangwal was making “insidious efforts to create an unseemly controversy about corporate governance at IndiGo and his efforts to somehow convey a message that the IGE Group is exploiting IndiGo while he is the knight in shining armour who is defending IndiGo".

“Truth could not be further than that," said IGE Group.

The group also said that while both Bhatia and Gangwal undertook to invest 200 crore for the purchase of aircraft in 2005, IGE Group took the obligation to further invest up to 110 crore in IndiGo, over its existing investment of 99 crore then, as Gangwal didn’t want to take more financial risks.

“As IndiGo started operations, it was the IGE Group’s created ecosystem and infrastructure that provided critical support and nurturing to IndiGo such as pan-India sales and distribution network, call centre and IT services, and office space. These facilities and support services were provided at cost and many a time on a complimentary basis. 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," it said.

Mint had reported on 11 July that the disagreements between the two founders over the growth strategy of IndiGo had intensified over a period of time.

“The rights and obligations as shareholders of IndiGo were enshrined in the Shareholders Agreement to ‘reflect their agreement and understandings in relation to the governance, management and operation’ of IndiGo and that the Agreement would ‘govern the relationship between them.’ The deal was struck between seasoned business people who made their own assessment of risks, their rights, and their obligations," IGE Group said in its latest statement, adding that it was at the insistence of Gangwal that IndiGo was taken public in 2015.

“Mr. Gangwal says 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. The questions are: Is there 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? Mr. Gangwal has much to answer," said IGE Group.

The feud between the two founders may affect the airline’s operations, according to an 11 July report by Institutional Investor Advisory Service (IIAS).

“It may be a while before lenders and investors trust them (IndiGo) enough to give them access to capital. Most will ask them to sort out their internal battle first. Essentially, this means that if the airline wants to buy or lease more aircraft to take advantage of the open slots, it will find it that much more difficult. Existing lines with banks may see some contraction if lenders believe the governance issues will impact credit quality," IIAS said in a recent research report.

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