Respond to Gangwal’s charges in  three weeks,  MCA tells InterGlobe Aviation

  • Ministry of Corporate Affairs wants the company to respond to Gangwal's claims of corporate governance lapses
  • The Ministry is also looking into whether the shareholder agreement between Gangwal and Rahul Bhatia is in line with the Companies Act

New Delhi: The ministry of corporate affairs (MCA) has written to InterGlobe Aviation Ltd to respond to all the charges of corporate governance lapses raised by its co-founder Rakesh Gangwal, said a person privy to the development.

The ministry is also looking into whether the shareholder agreement between Gangwal and co-founder Rahul Bhatia is in line with the Companies Act. If not, the shareholder agreement will become void. “You cannot circumvent the law with an agreement. The company has been asked to give its comments. The government gives companies 2-3 weeks to respond in such cases," the person said on condition of anonymity.

The feud between the two founders of India’s largest airline could potentially impede IndiGo’s plan to take advantage of the grounding of Jet Airways (India) Ltd to expand overseas and further increase its market share in India.

The ministry is assessing whether the special rights that Bhatia’s InterGlobe Enterprises Pvt. Ltd (IGE) enjoys in running the airline on account of the shareholder agreement has in anyway led to any kind of deviation from corporate governance standards.

“As of now, the company has not received any request for information from the ministry of corporate affairs," IndiGo said in a statement. A request for information sent to IGE remained unanswered at the time of publishing. In a statement earlier in the week, IGE denied the charges levelled by Gangwal and suggested the issue was the sanctity of the agreement entered into by business people freely and on 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 the statement.

The shareholder agreement gives IGE the power to appoint three out of the six directors of IndiGo, nominate a chairman as well as appoint a managing director and chief executive. Gangwal and his associates hold about 37% in the company, while Bhatia and his associates hold 38%. The agreement also forces Gangwal and his affiliates to vote alongside IGE Group on the appointment of directors, as per a letter that Gangwal sent to the capital markets regulator earlier this month and shared with the public by the airline’s parent company through stock exchanges.

“The question is what sort of extra influence or control you can give through a shareholder agreement. It cannot take such a shape that it actually affects corporate governance norms including functioning of independent directors and the audit committee," said the person. The law will prevail if any such agreement is contradictory to the provisions of law.

However, the government has so far not found any corporate governance lapse at the company.

“The terrific track record of the company and the company’s 50% air travel market share are two reasonable indicators of efficient and sound management. What has come is just an allegation, nothing earth-shattering," said the person.

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