IndiGo truce frays as Gangwal seeks Sebi’s intervention again

New Delhi: The fragile truce between the two feuding co-founders of IndiGo, India’s largest airline, appears to be all but broken, with Rakesh Gangwal, one of them, seeking intervention from the markets regulator on a number of contentious issues.

Days after InterGlobe Aviation Ltd’s chief executive Ronojoy Dutta claimed that the dispute between Rahul Bhatia and Gangwal was resolved, Gangwal wrote to Securities and Exchange Board of India (Sebi) on 30 August, seeking directions on issues ranging from related-party transactions (RPTs) and chairman M. Damodaran’s conduct to curbing Bhatia’s InterGlobe Enterprises Group’s (IGE’s) “unusual controlling rights”.

On Wednesday, IndiGo told stock exchanges that it will respond to a Sebi email seeking its comments on Gangwal’s letter, without giving details. Mint has not seen a copy of the letter.

With Gangwal refusing to back down, the dispute may prove to be a costly distraction for the airline, which dominates Indian skies with nearly 50% share. In July, Gangwal first complained to Sebi that Bhatia’s IGE group’s outsized rights have helped it push through transactions and policy changes that violate corporate governance rules. Bhatia has denied the allegations.

“The consensus between promoters on ‘related party transaction’ policy and Board composition is a positive sentiment for investors. However, a further fallout could affect the sentiments, and stock price. It must be noted though that the performance of the airline was not affected due to the tussle between the promoters,” said a Mumbai-based analyst who tracks the aviation sector closely, requesting anonymity.

“There are reasons to be positive about IndiGo as the airline is seeing strong volume growth, and has an cost advantage over its competitors,” the person added.

Gangwal and his associates hold nearly 37% in InterGlobe Aviation, while IGE group owns around 38%. Although the two groups own similar stakes, an initial agreement gave special rights to Bhatia’s company.

“As previously disclosed, at the recent AGM (annual general meeting) of the company held on August 27, 2019, both the promoter groups have voted in favour of all the resolutions, including the resolutions to amend the Articles of Association (AoA) of the company to expand the size of the board to 10 members and to appoint the chairman as an independent director of the company,” IndiGo said. “Further, as on date, the company has in place a revised RPT policy as approved by the company’s audit committee and the board.”

On 27 August, Mint reported that Gangwal agreed to support the proposed changes at the AGM after some of his demands, including on board expansion and RPTs, were accepted, ending months of public wrangling.

Gangwal had earlier objected to the board expansion as he contended that in the absence or resignation of an independent director, Bhatia’s IGE group would have an unfair advantage in approving key policy changes since it has five directors representing it.

After the airline’s AGM on 27 August, which saw both promoters groups vote in favour of all resolutions, it was widely reported that a truce has been reached between the founders.

“Truce is a strange word to describe the situation,” said a person directly aware of the matter, requesting anonymity. “As far RPTs are concerned, solution has been found, which has satisfied both promoters. The complaints raised by Gangwal with Sebi and other regulators is still an open issue though, which will likely be investigated,” the person added.