Moneycontrol PRO
UPCOMING EVENT:Are you 45+? Planning for retirement? We have just the right webinar for you - Planning for Retirement with Life Insurance on 27-Jan, 3pm. Register now!
you are here: HomeNewsBusiness

Explained| Why IndiGo's promoters fell out and how the upcoming EGM can settle the dispute

The eyeball to eyeball confrontation between the airline's promoters Rahul Bhatia and Rakesh Gangwal may finally end if the EGM removes restrictions on the transfer of promoter shares.

December 09, 2021 / 03:08 PM IST
Representative image

Representative image

The spat between Rahul Bhatia and Rakesh Gangwal, promoters of InterGlobe Aviation, the company that operates India's largest domestic airline IndiGo, is on the verge of being resolved.

The airline has called an extraordinary-general meeting on December 30, to amend its Articles of Association and remove restrictions on the transfer of promoter shares.

However, unlike in 2019, when Gangwal had called an EGM to amend IndiGo’s Art¬icles of Association, this time around both Gangwal and Bhatia, who collectively hold 74.44 percent of the paid-up equity share capital of InterGlobe, have called for an EGM.

The resolution to amend the company’s Articles of Association is expected to pass smoothly, given that both the promoters have jointly called the shareholder meeting

 

Close

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

What is the conflict about?

Rahul Bhatia and Rakesh Gangwal founded IndiGo as a low-cost airline back in 2006. Bhatia worked in the hospitality sector, while Gangwal was a senior executive at United Airlines.

Both the promoters held nearly 99 per cent in the airline prior to its listing in 2013 and as of March 31, 2021, Bhatia held around 38 per cent, while Gangwal owned a stake of around 37 percent in Interglobe Aviation, the parent company of IndiGo.

The dispute started in May 2019 when Gangwal accused Bhatia of indulging in ‘questionable’ related-party transactions between InterGlobe Aviation and Bhatia group entities.

Gangwal also flagged the unusual rights that give Bhatia control over the board and that have allegedly led to governance failures.

Gangwal had in 2019 alleged several irregularities in InterGlobe Aviation's related-party transactions, ranging from lack of competitive bidding to lack of audit committee approval in some cases and backdating of contracts in others.

InterGlobe Aviation carries out several transactions with companies owned by or connected to Rahul Bhatia for services ranging from ticketing to crew accommodation to simulation training.

Between 2010-11 and 2017-18, the value of these related-party transactions increased from Rs 31 crore to Rs 315 crore in FY18, according to the company’s annual reports.

A review of the related-party transactions done by InterGlobe board Chairman M Damodaran also showed that some related-party transactions were not approved by an audit committee, InterGloble Aviation had said in a notice to the stock exchanges in 2020.

Furthermore, the two founders also differ over the strategy for IndiGo’s growth. While Gangwal is said to favour a more aggressive growth path, Bhatia is understood to be in favour of a slow and steady approach.

It is also learnt that the two have been in a tussle over appointments of senior management personnel at the airline.

 

What has happened since 2019?

Since then the two promoters have gone to the London Court of International Arbitration (LCIA) to settle their differences, after a resolution proposed by Gangwal in 2019 to amend the company’s Art¬icles of Association was defeated by shareholders.

On September 23, 2021, the LCIA gave the final award in favour of Gangwal in the proceedings initiated by Bhatia against Gangwal.

The international arbitration award, contents of which have not been divulged in the public domain, had issued directions against both the parties in.

While Gangwal was directed to pay $25,000 each to Bhatia and the private company led by him as damages for defamation, the arbitration tribunal favoured Gangwal on the issue of restriction on the transfer of shares.

The order had mandated relief in terms of the shareholders’ agreement, whi¬ch gives greater control to Rahul Bhatia and puts restrictions on the transfer of shares.

The award also directs the reimbursement of the costs incurred by IndiGo in relation to the arbitration by the InterGlobe Enterprises Group. Both parties were granted 90 days’ time to enforce the order.

In October, Gangwal then moved the Delhi High Court to enforce the order before the 90-day period.

 

Will the spat be settled after the EGM?

The extraordinary general meeting has been called to scrap a clause in the company’s articles of association that gives the two owners the right of first refusal over the acquisition of each other’s shares.

This would allow either side to sell or transfer shares to a third party without giving each other notice.

While neither party has publicly said that they intend to sell their shares in IndiGo, if passed, the resolution would give both promoters a chance to exit the airline.

There is also speculation that after the resolution is passed, Gangwal may dilute his stake in the company.
Yaruqhullah Khan

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark