IndiGo promoters Bhatia, Gangwal reach compromise
25 July 2019
Rahul Bhatia and Rakesh Gangwal, the promoters of the India’s largest airline, IndiGo, have reached a truce brokered by the company’s chairman M Damodaran.
Bhatia and Gangwal, who together hold a 75-per cent stake in the company, have agreed on a board structure that gives higher representation to Bhatia’s InterGlobe Enterprises (IGE).
IndiGo is also close to finalising a policy to regulate the issue of related-party transactions (RPTs), a move aimed at addressing the concerns raised by co-promoter Gangwal.
Gangwal on July 8 wrote to Sebi, alleging lack of corporate governance in the company and sought its intervention. He had flagged concerns about certain questionable RPTs and corporate governance rules, including there being no woman independent director on the company’s board.
The agreement was reached at a board meeting held on July 19 and 20. According to the new board structure, the IndiGo board will be expanded from six to 10. It will include four independent directors, including a woman. The board will also have five nominees of Bhatia’s IGE, besides Gangwal. As per the Articles of Association (AoA), the IGE group will continue to have the right to nominate CEO, MD, and president. With a view to ensure the independence of directors, a head hunting firm will be appointed by the board to search for directors.
The board of directors has decided to amend the Articles of Association (AoA) for expanding the board, the company said in a regulatory filing on Sunday. The said AoA will be subject to approval of the shareholders at the forthcoming annual general meeting of the company, it said.
RPTs involving Bhatia's InterGlobe Enterprises was one of the issues flagged by Gangwal. Gangwal had flagged transactions between IndiGo and IGE for the airline’s leased headquarter office space in Gurugram, a simulator facility for pilots and also the use of Accor hotels in India for pilots and crew.
Under the new RPT policy, request for proposals (RFPs) will be floated for all transactions worth over Rs 2 crore and a competitive bidding process will be followed. External consultants will be hired to deal with technical issues and transactions. Currently, the RPTs are in the areas of real estate leased to Inter-Globe (the company that operates IndiGo), simulator training facilities, general sales agents, and crew accommodation at Accor Hotels.
Any changes in RPTs related party transactions would have to be unanimously approved by the company’s independent directors. The company’s top executives – CEO Ronojoy Dutta, CFO Rohit Philip, General Counsel Priya Mehra and Company Secretary Sanjay Gupta – have been asked to design stronger procedures for entering into related party transactions.
Bhatia and IGE together own 38.23% in the airline, while 36.65% is owned by Gangwal, his wife and a trust. Though the equity stakes of the two principal shareholders are almost equal, Bhatia and his IGE hold controlling rights as their financial investments and economic risks were much greater.