Rakesh Gangwal, the co-founder of IndiGo, in a boardroom battle with partner Rahul Bhatia, has vowed to continue to raise the issue of lack of corporate governance at InterGlobe Aviation Ltd. (IGAL), the company that runs India’s biggest airline, till it is sorted out
He has sought the government’s intervention to clean up the ‘mess’ at the airline company, he and Mr. Bhatia co-founded in 2006 with an initial capital investment of $6 million each. Now both sides are know as RG Group with 37% stake and InterGlobe Enterprises (IGE) Group with 38% stake in IGAL.
“I am not going to rest till the issue is fixed. The government needs to look into it and the company needs a higher proportion of independent directors,” Mr. Gangwal, told The Hindu.
“IndiGo is much bigger than its two promoters. IndiGo has become too important for India and corporate governance has to improve in the company before it is too late,” he added.
After filing a complaint with the SEBI on Tuesday to probe into issues at IGAL, Mr. Gangwal had camped in Delhi to meet officials of various government departments to sensitise them about the importance of corporate governance and induction of more independent directors on IndiGo’s board.
According to him, Related Party Transactions (RPT) entered into between IGAL and IGE Group companies, of which IndiGo’s co-promoter Rahul Bhatia is the owner, are improper and against corporate governance norms. Any deviation from high standards, which may now appear small, could potentially lead to disintegration of the airline, Mr. Gangwal felt.
The IGE Group, which has been denying Mr. Gangwal’s allegations as ‘baseless, fact-free and insidious’, came out with a statement on Friday ‘deploring’ the ‘misinformation’ campaign by Mr. Gangwal.
“Corporate governance is not about levelling baseless charges. It is about ensuring that the company’s interests as also those of other stakeholders are protected and not harmed,” IGE Group said in a statement.
“Mr. Gangwal fails to cite a single concrete example where any act or omission has resulted in any loss or damage to IndiGo,” it said.
“Now that Mr. Gangwal has raised a much orchestrated controversy around corporate governance, one might ask the question: what are facts put out by him to support his allegation of “collapsing” corporate governance standards. Has there been any stripping of assets or profits? Has there been any misfeasance or fraud?,” IGE Group asked, adding that the charges were nothing but “hot air”.
It said while Mr. Gangwal has ‘harped’ on ‘unusual’ rights being enjoyed by IGE at the carrier firm, the shareholders’ agreement was negotiated several times and amended twice to comply with regulatory provisions. It said disclosures were made in the IPO that IndiGo would remain a promoter-led company and the arrangements between the two promoters were made public.
Responding to Mr. Gangwal’s Paan ki dukaan jibe made in his letter to SEBI, IGE Group said, “The Paan ki dukaan [IndiGo] has apparently done well and continues to do well; it is financially sound; it is well run and managed by a competent set of managers. Mr. Gangwal’s allegations about lack of corporate governance are much ado about nothing.”
While IGE Group has stated that the RPTs are miniscule and on a decline and are estimated at only ₹150 crore, the RG Group said several such deals had been cancelled after they were flagged by Mr. Gangwal.
Happier times
The acrimony now playing out is in sharp contrast to the close friendship that once existed between the two. Mr. Gangwal was a top gun in the U.S. aviation industry having worked in United Airlines, Air France and U.S. Airways, and Mr. Bhatia, who was then handling his family’s General Sales Agent business had ambitions to make it big in aviation.
It is learnt that the two met on one of Mr. Bhatia’s visits to Chicago where Mr. Gangwal was working as VP-Planning at United Airlines, before the acquaintance gradually turned to friendship.
Both met during Mr. Gangwal’s visit to India and gradually they became close friends.
In 2000, when Kapil Bhatia, director in IndiGo and Rahul Bhatia’s father, wanted to start an airline, Mr. Gangwal advised them to stay away as the policy was not conducive. But in 2004, when the government announced the Open Sky policy, the Bhatias made the plunge. It was as per Mr. Gangwal’s suggestion that IndiGo placed 100 Airbus A320 orders.
As per IGE Group’s statement, both Mr. Bhatia and Mr. Gangwal signed a heavily negotiated shareholders agreement between the IGE Group and RG Group to “reflect their agreement and understanding in relation to the governance, management and operations in IndiGo and stated their wish that the agreement would govern the relationship between them. The agreement contained mutual rights and obligation of parties.”
As per IGE Group’s statement, Mr. Gangwal did not join the board, though he was entitled to, till IndiGo’s IPO in 2015. This indicated the level of trust between the two friends. Meticulous planning by Mr. Gangwal, starting from aircraft acquisition to route planning, and flawless execution by Mr. Bhatia, who knew how to run the business in a difficult regulated business, has made IndiGo the carrier it is today.
It appears that the discomfort between them started surfacing two years ago. Initially Mr. Gangwal would make suggestions to Mr. Bhatia and which were reportedly not taken.
Finally, a year ago, Mr. Gangwal started raising issues at the board level and there were times of unwanted exchanges.
(With inputs from Jagriti Chandra in New Delhi)
