The worsening differences between the two promoters of IndiGo, Rahul Bhatia and Rakesh Gangwal, have reportedly begun affecting its day-to-day operations and threatening its market leadership.
The promoters have made serious allegations against each other, forcing the Securities and Exchange Board of India (Sebi) to intervene, according to a Business Standard report. The two promoters and their families control about 75 per cent stake in the country's largest budget airline by market share, revenue and fleet size.
The company's internal problems have hit its share value with the scrip shedding almost 16 per cent in three days. The share was trading at 1,389 by noon on the National Stock Exchange (NSE), down 11 per cent from the previous day's closing, having slipped 17 per cent in the morning session.
The 50-share benchmark Nifty was trading 0.44 per cent down while the Bombay Stock Exchange (BSE) index Senex was down 0.4 per cent. IndiGo's main rival in the budget carrier segment, SpiceJet, gained nearly 2 per cent on NSE, trading at about Rs 119.
Gangwal, who holds 36.68 per cent of Indigo's shares, has sought permission to hold an extraordinary general (EGM) meeting, alleging that the company has participated in objectionable related-party transactions (RPTs) and has not complied with corporate governance standards, the report says. He said that Bhatia-owned InterGlobe Enterprises (IGE), which has greater control over the company, has misused its powers to enter into RPTs with IndiGo.
Bhatia has denied the allegations, saying that the Companies Act gave powers to the board of the company to decide its functioning. In a 23-page letter to Sebi chairman Ajay Tyagi, with a copy to Prime Minister Narendra Modi, Gangwal wrote that besides questionable RPTs, key governance norms were not being adhered to and this would lead to "unfortunate outcomes" unless corrected.
Corporate governance regulations prescribed by Sebi as well as those of the company's code of conduct for directors and the senior management have been violated, according to the allegations.
"We are big believers in the long-term potential of IndiGo and its business and operational model. However, we also firmly believe that IndiGo can realise its true potential and be a world-class company only if it has a world-class business and operational model as well as world-class governance standards," said Gangwal.
The allegedly tainted RPTs relate to deals that IndiGo has entered into for the hotel accommodation of its crew, simulators for crew training, and the office space the airline uses. "It is startling to hear that such transactions between the company and IGE Group are administrative issues and not an airline issue … We sincerely hope that the CEO, who was nominated by the IGE Group but not classified as a 'nominee CEO of the IGE Group', is not in some way conflicted on this issue," Gangwal said.
Bhatia has said in a letter to Sebi that the allegations were nothing but an attempt by Gangwal to dilute the IGE Group's control. "Related-party transactions issues have an underlying context. And, that is, the real motivation and intent of the RG (Rakesh Gangwal) Group," said Bhatia.
"It has now more clearly emerged that the real agenda of the RG Group is to dilute and diminish the controlling rights of the IGE Group and to relieve itself from its obligations under the Shareholders' Agreement (SHA) and the Articles of Association (AoA) which ensure implementation and enforcement of the IGE Group's controlling rights," he added.
Industry observers are worried that internal fighting could take IndiGo, which began operations in 2006, down the same painful path that Jet Airways, founded by Naresh Goyal in 1993, went after it ran into operational problems following a cash crunch. Jet Airways flew last on April 17 and is now undergoing insolvency proceedings.