After Sebi, the ministry of corporate affairs (MCA) has sought “comments” from Interglobe Aviation that runs IndiGo on the allegations of lapses of corporate governance at the company levelled by co-promoter Rakesh Gangwal. An official source said on Tuesday that the ministry would expect a detailed response from Interglobe in about 2-3 weeks.
Once the company submits its reply, the MCA will examine if there has been any violation of the Companies Act. “So far, there is no need to press the panic button. But since grave allegations have been made by none other than the co-promoter, the government is looking into the issue,” said the source. In case the Articles of Association (AoA) and the shareholders’ agreement are not in sync with the Companies Act, it could prompt the relevant authorities to act.
Gangwal has accused his partner and co-promoter of Interglobe Aviation, Rahul Bhatia, of multiple corporate governance violations.
The charges include Bhatia carrying out related-party transactions (RPTs) without the approval of the audit committee and breaching the code of conduct for appointment of directors and senior management. Bhatia has rejected these charges. Gangwal holds 36.69% and Bhatia 37.9% in Interglobe Aviation.
In a letter to Sebi, Gangwal has urged the stock market regulator to amend the article of association with Bhatia to ensure that he gets equal rights in the company’s management. While the shareholders’ agreement between Gangwal and Bhatia expires in October, the AoA extends beyond that. Sebi has already sought response of Interglobe Aviation on the allegations by July 19.
Analysts have said that since any amendment to the AoA requires the approval of at least 75% of shareholders as it is a special resolution, such tweakings appear unlikely given the current shareholding pattern (in favour of Bhatia).
Gangwal has also sought probe into violations of corporate governance norms by Bhatia and the firm controlled by him – Interglobe Enterprises (IGE). He has been seeking board expansion by increasing the number of independent directors and an extraordinary general meeting to address his concerns.
Bhatia has termed Gangwal’s allegations as an agenda to dilute and diminish the controlling rights of the IGE group. In a statement on July 10, he said all RPTs have been executed at arms’ length basis. These transactions are in the areas of real estate, simulator training facility, general sales agents agreement and crew accommodations, and accounted for Rs 150 crore or just 0.53% of the consolidated turnover in FY19, he said.
In a statement on Sunday, IGE Group sought to justify the wider powers given to Bhatia to run IndiGo, saying he bore most of the financial risk to grow the airline, while Gangwal restricted his investment to less than Rs 15 crore. “Mr Gangwal was missing in action at that time and there were stages where he wanted to de-risk and pushed for the business to be sold. However, the IGE Group went ahead to continue to support the start-up without in anyway diluting Mr. Gangwal’s potential upside,” the IGE Group said. IndiGo had a 49% market share in India at the end of May and has been expanding its overseas capacities by 25% year-on-year.