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The Economic Times

IndiGo: Could this get Rakesh Gangwal to patch up with Rahul Bhatia?

Rakesh-gangwal-BCCL
Gangwal, who lives in America and was the chairman of US Airways till 2007, has levelled serious charges of deteriorating corporate governance at IndiGo.
The much publicised fight between IndiGo promoters Rakesh Gangwal and Rahul Bhatia has resulted in nearly $1.5 billion of wealth erosion in just two trading sessions on the stock exchanges. And the big reason for that is the markets fear the Batman and Robin of India's largest airline have reached a point of no return?

Besides a call for more than two independent directors on the Board, Gangwal is standing firm on three provisions that must be incorporated and they deal with related party transactions.

Gangwal, who lives in America and was the chairman of US Airways till 2007, has levelled serious charges of deteriorating corporate governance at IndiGo. So much so he calls it being handled worse than a "paan ki dukaan" and holds his business partner and co-promoter, Bhatia, responsible for this.

So what was the dealbreaker?

For instance, Gangwal, has written about IndiGo carrying out related party transactions in his letter to the Prime Minister, Ministry Of Finance, Ministry Of Corporate Affairs and SEBI.

InterGlobe Enterprises, the company of Bhatia, has issued a public statement saying these related party transactions stand at a miniscule 0.53% of the 2018-19 turnover of InterGlobe Aviation i.e., the owner of IndiGo. Can related party transactions really be the reason?

"Yes. Because what the statement by Interglobe Aviation is silent on are the number of related party transactions that were cancelled. Gangwal had three big demands as far as such deals are concerned, and Bhatia through months of negotiations refused to accept them," said a source helping out Gangwal with his legal stand.

Gangwal's three demands
Firstly, Gangwal wants all related party transactions to be capped, and at a threshold ET Now has not been able to ascertain. Beyond the threshold, he wants Interglobe Aviation to call for competitive bids.

Secondly, Gangwal is believed to have insisted the entire Board Of Interglobe Aviation opine on the proposed related party deal which should then be shared with the Audit Committee. The buck must stop with the Audit Committee after it receives the opinion of the Board.

Sources say the Bhatia camp has reluctantly agreed to this condition too.

It is the third demand, according to sources, that proved to be the dealbreaker.

Gangwal, citing highest standards of corporate governance, wanted any dilution of the above two provisions on related party transactions to be blessed by more than 50% of the shareholders.

Sources add Gangwal wanted the third condition to also be included in the Shareholder Agreement that lapses later this year.

It should be pointed out that both promoters have an almost equal stake in Interglobe of around 37% each.

Flight Of No Return?
After such a highly publicised fight, it is difficult to envisage an amicable resolution. But India cannot afford another airline to crashland. Neither of the two promoters have moved Court, and neither of them have initiated dialogue with each other directly or via lawyers. Also, no promoter is calling for the other’s exit, at least yet. So in larger public interest, it would be ideal if the two promoters find a compromise.

The writer was the first to break the story of the Indigo promoters tiff on May 19, 2019. It was confirmed when InterGlobe Aviation informed the stock exchanges on July 9, 2019 that co-promoter Rakesh Gangwal was seeking Sebi's intervention on his grievances.
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