Business Today – August 25, 2019

are, indeed, one-sided, considering

that both the founders hold an almost

equal stake. “It’s difficult to say why

they signed such a one-sided agree-

ment. I think nobody had imagined

that IndiGo would become so big in a

short time,” says Amit Sinha, Partner

at Bain & Co. The terms survived even

during the IndiGo’s initial public of-

fering in 2015, when the shareholders’

agreement (SHA) was heavily renego-

tiated twice.

However, after weeks of uncer-

tainty that hit the IndiGo stock

and threatened the future of India’s

longest-running profitable airline,

reports suggest that the co-founders

have agreed to a settlement, bro-

kered by the airline’s Chairman, M.

Damodaran. As per the reports, the

co-founders have agreed to increase

the board strength to 10 – adding four

independent directors, including a

woman (as mandated by SEBI rules).

Also, external advice will be sought

for related party transactions over

`2 crore, and bidding will be manda-

tory for such contracts. In addition,

changes in related party transactions

will have to be unanimously approved

by the airline’s independent directors.

Though the settlement will assure

investors for the time being, the truce

is, in all likelihood, temporary. Just

a few days after the reported agree-

ment, Gangwal, referring to Bhatia’s

claims on related party transactions,

was quoted in the media as saying: “I

wish people had the conviction to be

quoted and not hide behind the veil of

so-called unnamed ‘sources’ to spread

a false narrative in the media.” This

60 IBUSINESS TODAYIAugust 25 I 2019

n the third week of July, IndiGo reported its highest-ever quarterly
profit of `1,203 crore, a staggering 4,230 per cent jump over the first
quarter of last year. The strong performance came in the backdrop of
the slowdown in the aviation sector as passenger growth plummeted to
a multi-year low in the first six months of 2019. The airline also reported
its highest ever market share of 49 per cent in quarter-ended June. All
this called for a grand celebration at the Gurgaon-headquartered car-
rier that has grown from a single aircraft to over 238 in just over a doz-
en years. But the euphoria was clouded by the bitter fight between the
friends-turned-foes co-founders – Rakesh Gangwal and Rahul Bhatia

• mainly over the latter’s unequal rights and powers and the controver-
  sial related party transactions between Bhatia’s private firm InterGlobe
  Enterprises (IGE Group) and IndiGo.
  The first salvo was fired by Gangwal who, in a letter to market regu-
  lator SEBI’s top brass in early July, objected to the “unusual” rights giv-
  en to the Bhatia-controlled IGE Group and his alleged abuse of these
  rights to serve his vested interests. The IGE Group responded by saying
  “the parties went into the venture with their eyes open... the deal was
  struck between seasoned business people who made their own assess-
  ment of risks, their rights, and their obligations.” Experts say the rights

CORPORATE>INDIGO

WHY THE

TRUCE

MIGHT

NOT LAST

The most crucial

issue – unusual

rights of Bhatia's IGE

Group – still remains

unresolved

The right of first refusal

clause in the shareholders'

agreement restricts the

option of both promoters

to sell their stake to a

third party and move

out peacefully

Even after the expansion

of the board, Bhatia is

expected to have 50

per cent representation,

which will continue to

limit Gangwal's heft

on the board