The government is to examine the shareholder’s agreement (SHA) between IndiGo’s promoters Rahul Bhatia and Rakesh Gangwal to see if the same is in accordance accordance with provisions of the Companies Act.
Over the last few days, Gangwal has flagged the issue with the government and alleged serious corporate mis-governance in the airline.
“The corporate affairs ministry will examine the SHA to see if it is in line with section 6 of the Companies Act. If it is found to be violative of legal requirements, the same will be rendered null and void,” a senior official said. Section 6 is a provision to override memorandum of articles or any other agreement executed or resolution passed by a company if the same are contrary to provisions of the Companies Act. The SHA between the two co-founders is due to lapse in October 2019.
Gangwal’s complaints are learnt to centre around overall corporate governance of IndiGo, including appointment of board of directors, top management people and related-party transactions that the airline entered into with Bhatia family-controlled InterGlobe Enterprises (IGE). “Bhatia has argued that these rights flow from the SHA,” Gangwal’s complaint to Sebi said.
The Bhatia group has denied all the charges. Related-party transactions (RPTs) between IndiGo and IGE Group companies are in four areas — real estate leased to the airline; simulator training facilities; general sales agents (GSAs for limited foreign markets only) and crew accommodation at Accor Hotels. Bhatia Group says these RPTs were disclosed at the time of IPO in 2015 and “materiality of the transactions for (IndiGo) is not significant as… it is only 0.53% of (IndiGo’s) consolidated turnover for FY 2018-19.”
Gangwal, on his part, has written to Sebi, saying: “I hadn’t contemplated that over the years, Bhatia would start building an ecosystem of other companies that would enter into dozens of related party transactions with IndiGo… Beyond just questionable RPTs, various fundamental governance norms and laws are not being adhered to…”