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IndiGo promoters’ feud: Govt may check validity of shareholder pact with Companies Act

The shareholder agreement between Bhatia s entity InterGlobe Enterprises (IGE) and Rakesh Gangwal is set for renewal in October this year.

The slugfest between IndiGo s promoters, which started as a disagreement over business practices among the two co-founders Rahul Bhatia and Rakesh Gangwal, has snowballed to the extent that the government is expected to intervene in the matters pertaining to the contractual agreement between the promoters and its adherence to the prevalent corporate laws. The shareholder agreement between Bhatia s entity InterGlobe Enterprises (IGE) and Rakesh Gangwal is set for renewal in October this year.

Gangwal has already sought intervention of the Securities and Exchange Board of India (Sebi) into alleged lapses in corporate governance at IndiGo, and the markets regulator has asked India s largest airline to respond by Friday.

Notably, IndiGo s board of directors is also expected to meet on Friday, where issues relevant to the spar between the promoters is likely to be discussed. Officially, though, the company has informed the exchanges that at the Friday meeting, its Board will consider and approve the airline s financial results for quarter-ended June 30.

In the letter to Sebi, Gangwal noted he had entered into a shareholders agreement that provides Bhatia unusual controlling rights over IndiGo.

The IGE Group s rights include those to appoint three out of six directors, nominate and appoint Chairman, CEO, President as well as a voting arrangement that requires Gangwal and his affiliates to vote alongside the Group on appointment of directors, as per the letter.

Bhatia s entity has refuted the allegations stating that the parties went in to the ventures with their eyes open and that the deal was struck between seasoned business people who made their own assessment of risks, their rights and their obligations .

However, according to government sources, the Ministry of Corporate Affairs is expected to look at the agreement between the two parties with the lens of Companies Act to determine whether the pact and its clauses are in adherence to the law. If any aspect of the agreement is found to be in contravention of the Companies Act, the ministry can override it.