MUMBAI: A potential shift in the power equation, with the imminent expiry of shareholders’ agreement (SHA) and articles of association (AoA) of InterGlobe Aviation Ltd in October, has emerged as the probable reason for the estrangement between the airline’s co-promoters Rakesh Gangwal and Rahul Bhatia.

As internal company memos surface, it is becoming clear that the likely shift in power equations is driving discussions regarding related party transactions (RPTs) and original equipment manufacturers (OEM) orders.

A 12 June letter by Bhatia to the board and the company secretary of InterGlobe Aviation reveals that the public tussle between Bhatia and Gangwal actually stems from the potential shift in power to manage and control Indigo’s businesses, with the company’s SHA and AoA coming up for renewal in October. Mint has reviewed the letter.

Gangwal has now approached the Securities and Exchange Board pointing to allegedly lax policies regarding related-party transactions (RPTs) at Indigo, and the market regulator has summoned the airline’s company secretary. Gangwal, along with his wife and associate firms, holds around 37% in InterGlobe Aviation.

Bhatia states in the letter that Gangwal had agreed to the company’s RPT policy and had never raised the issue earlier. “…the real agenda of the RG Group is to dilute and diminish the controlling rights of the InterGlobe Enterprises Pvt. Ltd (IGE Group) and to relieve itself from its obligations under the shareholder’s agreement and the AoA…" said Bhatia in the letter.

According to the sequence of events detailed in Bhatia’s letter, a new methodology for the review of RPTs was proposed at a board meeting held on 4 March, after M. Damodaran had joined the airline as chairman in January. Following this, an internal committee—comprising the CEO, chief financial officer, the company secretary and the general counsel—was constituted to examine RPTs and make its recommendations to the audit committee within four months. Separately, as per Damodaran’s suggestion, EY was appointed by IndiGo’s board to conduct an independent review of IndiGo’s RPTs over the past five years.

Immediately after this board meeting, Gangwal circulated a proposed process flow chart as a recommendation to the management committee for the approval of RPTs. Exactly a month later, on 4 April, the management submitted to the board its version of the process flow. IndiGo’s audit committee then met on 11 April to review each of the RPTs following the examination of such transactions by the internal committee.

EY’s review was completed by mid-May and it did not reveal any irregularity, according to the June letter.

Then on 18 May, IndiGo’s CEO Ronojoy Dutta emailed Gangwal, “I have to tell you I have looked high and low on RPTs and there is no smoking gun."

Subsequently, on 27 May, the minutes of the audit committee were presented to all the members of the board, including Gangwal. Bhatia in his letter alleges that Gangwal did not provide any note, comments or observations on either the credibility of the RPT procedures or the decisions of the management and the audit committee.

Bhatia apparently met Gangwal on 28 May to resolve their issues related to IndiGo’s SHA and the AoA. “In that meeting, Gangwal was clear in his statements–that in retrospect he had made a mistake in agreeing to support the IGE Group through voting rights agreement embedded in the SHA and the AoA, and his desire was to have all those provisions deleted; that he should not be obliged to vote with the IGE Group; and if the “package" was accepted and changes made in the AoA, he would vote for the IGE nominees at least in the upcoming general meeting," Bhatia’s letter states.

The letter then goes on to add that on 29 May, Gangwal, in two separate emails addressed to Indigo’s board members and the senior management, said that his offer to expand the board to eight members—necessitated by regulations requiring a woman independent director and one additional nominee of the IGE Group--will be subject to the RG Group being relieved of its obligations under the SHA and the AoA by en masse deletion of articles deemed inconvenient by him. Gangwal termed this deal as a “package".

In these emails, Bhatia claims, Gangwal did mention about the policy on RPTs.

The sequence of these events seems to indicate that the crux of the Bhatia-Gangwal dispute lies in the two emails by Gangwal on 29 May, in which he demands a relief from the obligations set out for him and the RG Group in the SHA and the AoA. Even after the SHA expires in October, the RG Group will be obliged to adhere to certain residual provisions of the SHA and the AoA.

According to Bhatia, Gangwal is seeking to free himself from two critical obligations in the AoA. The first is the one that says each group (IGE Group and RG Group) has to ensure that only their nominee directors are entitled to effect the appointment of directors and alternate directors through a board or general meeting. The second obliges Gangwal, his group and the RG Group’s nominee directors to vote in favour of IGE Group’s right to nominate IndiGo’s top management.


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