Bhatia, Gangwal hire law firms to help pre-empt a power struggle
The brief for the law firms is to avoid escalation of differences and prevent the matter from landing in court
MUMBAI/NEW DELHI: Rakesh Gangwal and Rahul Bhatia, the founders of IndiGo, have hired law firms to pre-empt their differences over a shareholders’ agreement from snowballing into a long legal battle for control of India’s largest domestic airline, three people familiar with the matter said.
The shareholders’ agreement of IndiGo’s operator, InterGlobe Aviation Ltd, which expires later this year has emerged as one of the causes for the differences between Gangwal and Bhatia, the people said, requesting anonymity.
“Both sides are trying to defuse the situation and have roped in Haigreve Khaitan and Jyoti Sagar, founders of law firms Khaitan & Co. and J Sagar Associates, who will personally advise Gangwal and Bhatia to set aside their differences which have existed for a few years now," one of the three people cited above said.
InterGlobe Enterprises, the holding company of Bhatia, has the right to nominate three non-independent directors, according to the agreement.
It further allows Bhatia the right to appoint the chairman of the board and also nominate the managing director, the chief executive officer, and the president of the company.
“The brief is clear. It is to avoid any further escalation and prevent the matter from landing in court or for any legal proceedings," said the second person cited above. “The airline is doing well and any differences between the promoters should not damage the airline. Both law firms have been asked to iron out the differences between the promoters on strategies for the airline."
Also watch: IndiGo hits turbulence as founders differ over airline's management
On Thursday, shares of InterGlobe Aviation plunged 8.82% to ₹1,466.6 on BSE, underperforming the benchmark Sensex’s 0.75% gain.
The initial efforts will be to resolve the differences outside the courts, said Pavan Kumar Vijay, founder of advisory firm Corporate Professionals.
“Control on decisions of a company may differ even among those with similar shareholding, as support from directors of the company including independent directors may differ. The stalemate cannot continue," said Vijay.
IndiGo was founded by Bhatia and Gangwal in 2006. As of 31 March, Bhatia held about 38% in InterGlobe Aviation while Gangwal held about 37%.
IndiGo is currently the largest domestic airline with a market share of 46.9% at the end of March, according to data from Directorate General of Civil Aviation. It also has the largest fleet with more than 200 planes.
While both Bhatia and Gangwal did not respond to requests for comment, the people cited above said that differences had cropped between the two over several issues.
Gangwal was behind IndiGo’s huge plane orders, its aggressive domestic expansion plans, and its ambitious plans to go international which resulted in major changes in the senior management. According to company insiders, Gangwal, a former United Airlines and US Airways executive, along with Bhatia, has been the main force behind IndiGo’s operational efficiency which made it one of the fastest growing airlines in the world.
It was Gangwal who placed aggressive bets on the domestic aviation market via rapid expansion of fleet. Bhatia, on the other hand, handled public and regulatory affairs.
“Together they made a powerful combination, but it is their difference in vision which led to the current differences," the third person said.
Another person, who also worked with IndiGo, said that Gangwal doesn’t want to tie up with any other airline as he is not keen on diluting his equity. “IndiGo is one of the few companies which didn’t give Esops (employee stock options) to staff during its IPO (initial public offering)," the person said.
“I have a sense that Rahul Bhatia wants to tie up with a foreign airline, possibly a full service carrier, while Gangwal wants to keep the LCC (low-cost carrier) model and is against tie ups," said a former employee of IndiGo, who worked closely with both Bhatia and Gangwal," said the first person mentioned above.
Meanwhile, IndiGo chief executive Ronojoy Dutta assured employees in an email on Thursday that the carrier’s strategy remains the same despite the “alleged disagreement" between the promoters.
“We will continue our focus on creating value for all our share holders, our customers, our employees, and communities we serve," Dutta said in the email, a copy of which was reviewed by Mint.
IndiGo saw its chief executive Aditya Ghosh quit last year after helming the airline for about a decade since its inception. Ghosh declined to comment when contacted by Mint.