Greater control with cofounder Rahul Bhatia may be behind tiff in IndiGo cockpit

Bhatia's InterGlobe Enterprises has the right to appoint key managerial personnel & enjoys operational control.

MUMBAI: Cofounders Rahul Bhatia and Rakesh Gangwal hold near-equal stakes in IndiGo, but the scales are tilted in favour of Bhatia when it comes to control of the board and management.

Bhatia’s holding company Inter-Globe Enterprises (IGE) has the right to appoint key managerial personnel, including the chairman, MD, CEO and president. It also has the right to nominate three non-independent directors, one of whom will be non-retiring.

The Rakesh Gangwal (RG) Group, on the other hand, has the right to nominate just one non-independent director, who will be a non-retiring director, according to filings with the Registrar of Companies.


The articles of association (AoA) also give IGE operational control over the company and its management. The RG Group is required to fully comply with the shareholders’ agreement and the AoA, and its voting during general meetings is to be dictated by IGE.

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“IGE Group shall at all times control the company in all aspects and manner including management and operational control thereof,” says the AoA. “The RG Group shall fully comply with the terms of the shareholders’ agreement and these articles (including ensuring control of the company as aforesaid by IGE) by voting at the general meetings in the manner as directed by IGE Group.”
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‘Other, Bigger Issues Too’
The shareholders’ agreement, which appears to be among the irritants that triggered the current tiff between Bhatia and Gangwal, expires later this year.

“In hindsight, would Gangwal change some clauses in the articles of association and shareholders’ agreement? Absolutely! But there are other, bigger issues too,” said a person close to the development.

An email sent to IndiGo didn’t elicit a response till press time Thursday. In a clarification to stock exchanges earlier in the day, the company said it couldn’t comment as the matter related to the promoters. Neither Bhatia nor Gangwal commented on the issue.

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Bhatia and his family own 38.26% in the company while the Gangwal family holds 36.69%. Both have roped in their respective legal advisers — J Sagar Associates for Bhatia, and Khaitan & Co for Gangwal — to iron out the differences.

The shareholders’ agreement is inscribed in the company’s AoA, and any change will require a special resolution.

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Sanjay Ashar, a partner at law firm Crawford Bayley & Co, said any change in the AoA can only happen through a special resolution and needs the approval of 75% of the shareholders. “If a shareholder fails to get 75%, they can approach the National Company Law Tribunal under Sections 241and 242 of the Companies Act, 2013,” he added.

The AoA also says the shareholders’ agreement “will automatically expire on the fourth anniversary of the initial public offering”. IndiGo’s initial public offering hit the markets in October 2015, and its fourth anniversary falls in October this year.

The IGE Group represents InterGlobe Enterprises, Rahul Bhatia, Rohini Bhatia and Kapil Bhatia. The RG Group represents Rakesh Gangwal, his Caelum Investments, Shobha Gangwal and The Chinkerpoo Family Trust — whose trustees are Shobha Gangwal and JPMorgan Trust Company of Delaware.

It is not yet clear how the promoters would resolve their differences, but a parting of ways won’t be easy. A clause in the shareholders’ agreement says that “if any member of either the RG Group or the IGE Group proposes to transfer its shares to a third party purchaser (not being an affiliate) otherwise than on a stock exchange or by way of a pre-negotiated sale on a stock exchange, then the other group will have the right of first refusal and tag along right”.

“Neither group can transfer, either directly or indirectly, without the prior written consent of the other group, any of its shares to a competitor or to any person, if such a proposed transfer requires such a person to make an ‘open offer’ under the takeover regulations,” the agreement says.

These clauses will, however, expire with the current shareholders’ agreement in October.

The case of Greg Taylor illustrates the differences between the founders. A three-decade veteran at United Airlines, Taylor was brought in at Gangwal’s behest and was slated to head IndiGo. Taylor, a foreign national, though never got the requisite regulatory approvals to get appointed. Instead, Ronojoy Dutta, Gangwal’s former colleague but Bhatia’s choice, was brought in. Dutta too is a global aviation veteran. He headed United Airlines and was a board member at US Airways — both former employers of Gangwal. Dutta has also headed the erstwhile Air Sahara.

Another point of divergence was Gangwal’s aggressive ambition for expansion, which often faced resistance from IndiGo executives and Bhatia.

Gangwal and Bhatia’s confidence and trust in each other helped them build a profitable airline. In an interview before Indi-Go’s parent InterGlobe Aviation went public, Gangwal had reflected on his relationship with Bhatia: “It evolved into a phenomenal friendship. Blind trust is the way to look at it. It has worked well for both of us. I’ve enjoyed this relationship.”
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