In perhaps the biggest corporate controversy of the year, the two promoters of India’s biggest scheduled airline Indigo have locked horns against each other.
Rakesh Gangwal wrote a 49-page letter to SEBI, which was also copied to the Prime Minister, Finance Minister, and some other ministries. In the letter, Gangwal raised two issues causing the dispute – the related party transactions and unusual rights of Rakesh Gangwal.
Rakesh Gangwal wrote a 49-page letter to SEBI, which was also copied to the Prime Minister, and Finance Minister.
The issues have reportedly been brewing for nearly a year. And now it looks like the differences have become unresolvable. The news has already been damaging for the airline which saw its shares drop after the news came in.
Gangwal has put forward allegations that there were several irregularities in related party transactions (RPTs). He claims that these transactions were done without approval from the audit committee and there were no competitive biddings done. He also alleged that the transactions were done at arms’ length.
Gangwal has alleged that there were several irregularities in related party transactions (RPTs).
According to the EY report, some of the RPTs were not approved by the audit committee, some were executed before audit committee approval and some were extended without approval.
The company has acknowledged that the several RPTs were done without competitive bidding and were done at arms’ length to meet tax requirements. They also stated that they have restricted the RPTs only for international transactions since April 2016.
The second cause of the conflict dates back to the launch of IndiGo. Rahul Bhatia was the investing partner while Rakesh Gangwal was the operating partner. Bhatia was entitled to some exclusive management rights since he was the one to take the whole financial risk.
The second cause of the conflict dates back to the launch of IndiGo.
He has the right to appoint the chairman of the board of directors, the managing director, president, CEO and 3 out 6 directors on the board. Gangwal is now accusing Bhatia and his associates of abusing these rights.
Rahul Bhatia has denied all the allegations by Gangwal. Bhatia said that “there is no additional special interest that Bhatia entity has got from these RPTs and the fact is IndiGo has received the most favoured treatment in each RPTs.”
Rahul Bhatia has denied Rakesh Gangwal’s allegations saying there is no additional special interest that Bhatia entity has got from the Related Party Transactions.
He also pointed out that the EY report may have found some small irregularities but there were no major irregularities. He tackled Gangwar in his letter saying he didn’t have any problem for 13 years and signed annual accounts year after year without any whisper. He also reminded him how he took full advantage of the situation when he was generously allotted 50% equity.
In a June 12th letter, Bhatia had stated, “In hindsight however, the company will remain eternally grateful to Mr. Gangwal for having attempted to hold the company’s business to ransom (by purposely delaying the ongoing negotiations with OEMs), as this paved the way for the Company to institutionalize an area of operations which Mr Gangwal had kept as his exclusive preserve (to serve his far-sighted motive which has now become abundantly evidence.”
Gangwal has asked for two things 1) He wants SEBI to look into the unusual rights and ask the company to amend these rights. 2) He asked shareholders to call an EGM to enforce the code of conduct and new protocols for RPTs.
The promoter is looking for an Extra-Ordinary General Meeting (EGM) where he can implement reasonable procedures and safeguards for related party transactions with Bhatia and his affiliates.
SEBI has been investigating the issue since the first reports of the tiff emerged in May 2019.
SEBI has been investigating the issue since the first reports of the tiff emerged in May 2019. The market regulator has asked Indigo to respond to the letter by July 19, 2019.
By: Ishant Chaudhary, Business Writer, DKODING Media