Sebi scans IndiGo’s investor agreement for violation of rights

Markets regulator Securities and Exchange Board of India (Sebi) is scanning InterGlobe Aviation Ltd’s shareholders’ agreement (SHA) to check for any violation of the rights of minority investors and individual shareholders, a person with direct knowledge of the matter said.

On 8 July, Rakesh Gangwal, co-founder of India’s largest airline IndiGo, approached Sebi accusing his partner and co-founder Rahul Bhatia of corporate governance violations at InterGlobe Aviation, which operates the airline.

“Sebi is carefully examining the issue. In principle, Sebi is not in favour of bilateral SHAs such as this one, which may give disproportionate rights to one set of shareholders. In such SHAs, some of the rights of individual shareholders may be compromised," the official cited above said on condition of anonymity.

SHA is essentially a private contract between two parties and Sebi may not be able to interfere here. “But if the said SHA violates the rights of other shareholders, compromising on governance, then the markets regulator is likely to step in to protect the rights of minority shareholders," the person added.

In his letter to Sebi chairman Ajay Tyagi, Gangwal, a former chief executive of US Airways, alleged there were several violations at IndiGo, including those pertaining to related-party transactions; and appointment of senior management personnel, directors and the chairman, who has always been an independent director by convention. Bhatia has refuted the charges.

While Gangwal and his associates hold a nearly 37% in InterGlobe Aviation, Bhatia’s InterGlobe Enterprises (IGE) holds over 38%. IGE didn’t respond to Mint’s queries. An email sent to Sebi remained unanswered until press time. Gangwal, when contacted on phone, told Mint he doesn’t want to comment on the issue.

The feud between the founders seems to have intensified, with Gangwal stating last week that he had provided information on related-party transactions between IndiGo and Bhatia’s IGE to the “relevant authorities".

The IndiGo annual report released last week defended the transactions.“All transactions entered into with related parties as defined under the Companies Act, 2013, and the listing regulations during the financial year were in the ordinary course of business and on an arm’s length basis. All related-party transactions (RPTs) were placed before the audit committee for review and were approved," it said, adding none of the transactions with any of the related parties were in conflict with the interests of the company.

The existing SHA between IndiGo’s promoters will expire around November. With the expiry, the right of first refusal of one of the promoters, in case of the other wishing to sell his stake, will also expire.

“The only thing that will not expire is that in the future, whenever the Rahul Bhatia-led IGE nominates and appoints a managing director, president or chief executive, Rakesh Gangwal will have to vote with him as he has signed in the original SHA," said a second person with direct knowledge of the matter, adding that the company has agreed to review RPTs and new RPTs could be part of the process. “This has already been decided. Now, this will just have to be formalized," the person added.

The second person mentioned above said that both Bhatia and Gangwal have common interest when it comes to IndiGo being successful and profitable." Gangwal’s strategy seems to be to close big loopholes on RPTs, and put more independent directors in the company," the person added.