NEW DELHI: IndiGo co-founder Rahul Bhatia’s InterGlobe Enterprises (IGE) on Wednesday responded to allegations made by co-promoter Rakesh Gangwal regarding related party transactions (RPT) at IndiGo’s operating firm: InterGlobe Aviation (IGAL). IGE said that the RPTs accounted for just 0.53 per cent of the company’s turnover and that all “RPTs have been executed on an arms’ length basis and in the ordinary course of business”.
Earlier in the day, the company’s stock crashed over 11 per cent on the bourses after the Securities and Exchanges Board of India (SEBI) sought its response on Gangwal’s allegations. Gangwal had claimed that serious corporate governance lapses have taken place in IGAL, including questionable RPTs, non-appointment of a woman director, and other issues regarding its Articles of Association (AoA) and the appointment of senior personnel like the company’s chairman.
As far as the RPT’s are concerned, IGE said that as on date, RPTs exist only in four areas. All four of these together accounted for just Rs 150.12 crore or 0.53 per cent of IGAL’s consolidated turnover, it said citing unaudited numbers for FY19.
Meanwhile, Gangwal had also raised issues surrounding the AoA, which he said gave IGE and Bhatia sweeping rights over key appointments. For instance, the AoA agreed to by the promoters, allows IGE to nominate a chairman. This, Gangwal said, compromises the post’s independence. Gangwal and his affiliates hold around 37 per cent stake in IGAL, while Bhatia and his affiliates (IGE Group) hold around 38 per cent.
Bhatia, in his letter to Board of Directors, had countered that Gangwal had been clear during a meeting with IGE Group’s lawyers that he had made a mistake in agreeing to support IGE’s voting rights embedded in the Shareholders’ Agreement and the AoA, and that his desire was to have all those provisions deleted.
“To me, this does not appear to be a governance issue, given the fact that the RPTs mentioned is less than one per cent of the company’s revenue. AoAmay be skewed towards one group and the other might be trying to get that corrected,” said an analyst. Experts are uncertain what the regulator can do regarding the AoA and shareholders’ agreement. The markets are, however, concerned on how the issue could play out, with analysts saying that if the feud is not settled and heads for arbitration, it could result in significant erosion in market capitalisation