The spat between IndiGo co-founders Rakesh Gangwal and Rahul Bhatia ultimately moved out of the simmering discontent phase into an all-out public feud because of an email, or two. The explosive complaint letter that IndiGo co-founder Rakesh Gangwal recently sent to SEBI Chairman Ajay Tyagi puts the spotlight on Gangwal's request for an Extraordinary General Meeting of shareholders and how InterGlobe Aviation's board repeatedly quashed it.
Significantly, Gangwal claimed that just six minutes ahead of the scheduled board meeting to discuss his request, InterGlobe Aviation's Company Secretary sent him and Independent Director Anupam Khanna an email containing the legal opinion of a former Supreme Court judge, which basically stated that "... the Board need not call an extraordinary general meeting of the Querist". He added that despite the split 4-2 vote on the topic, the board refused to cooperate and "provide the necessary information for the requisitionists to conduct the EGM themselves despite this right being available under law".
The run-up to this stage itself was allegedly choc-a-bloc with transgressions. On May 22, Gangwal submitted a requisition to convene an EGM, "asking the shareholders to pass a resolution requiring the Directors and Senior Management of the Company to strictly adhere to the Code, and recommending certain new Protocols that will reinforce and underscore the Company's resolve towards good governance and transparency as well as protect the interests of all its shareholders and stakeholders". While Gangwal and his affiliates own a 36.68 per cent stake in the airline, Bhatia and his InterGlobe Enterprises (IGE) Group own around 38 per cent.
The first board meeting scheduled for June 5 by the chairman of the board to discuss his request had to be adjourned due to a no-show by the three directors nominated by the IGE Group - Bhatia, his wife Rohini and Anil Parashar. Meanwhile, Khanna and Gangwal had made themselves available via video conference from different locations in the United States. To the best of our knowledge, this has been the first time a Board meeting was adjourned due to lack of quorum," Gangwal stated in his letter.
As per the InterGlobe Aviation's Articles of Association, a new board meeting was reconvened a week later. The meeting was scheduled for 9.30 am on June 12, which according to Gangwal "coincidentally happened to be the last statutory date by when the Board had to deliberate and make decisions regarding the EGM requisition". However, just six minutes before the meeting was due to kick-off, the Company Secretary allegedly sends across the email to Gangwal and Khanna - with a CC to the Chairman - containing the 21-page, legal opinion of the former Supreme Court judge that thwarted the plans for the EGM. Incidentally, though the legal opinion was signed on June 7, it was not shared with all the concerned parties till the nth hour.
"This denied sufficient due diligence time and opportunity for board members to read, reflect upon, and understand the merits of the legal opinion on such a critical matter," said Gangwal, adding that the action "reeks of mala fide and disregard of basic corporate governance". It not only violates legal requirements that each item of business requiring approval at a board meeting be supported by relevant material facts that has to be handed over to the directors at least seven days in advance, but is also contrary to SEBI regulations. In fact, he claims that the full board was never consulted or informed that such legal opinion was being sought in the first place.
"Surprisingly, printed copies [of the legal opinion] were available at the Board meeting," said Gangwal, adding that the IGE Group's Nominee Directors were not marked on the email, which raises questions about their prior knowledge about this. "The board did not even take a break to read the full legal opinion and, after various debates, in a split 4 to 2 decision, voted to not proceed with the EGM requisition," he added.
On the basis of hearsay, it seems particularly damning that the Company Secretary informed Khanna just the evening before the scheduled board meeting that "no new developments had taken place regarding the EGM requisition" despite having already procured the legal opinion he would soon send out.
In response to these developments, on June 13, the RG Group, representing Gangwal, his wife Shobha and The Chinkerpoo Family Trust, obtained and circulated the legal opinion of a former Chief Justice of the Supreme Court, which had a contrary stand regarding the validity of the EGM requisition. "The requisition issued by RG Group satisfies the requirement of Indian law and is valid. The board has wrongly taken a stand that they are not obliged to call a meeting of the shareholders and that, the requisition is invalid," the Chief Justice stated, adding that at the very least "the board should have put the resolution to the shareholders for voting".
The same day, the RG Group sent an email to the directors of InterGlobe Aviation questioning why the legal opinion obtained by the company had been held back and whether the IGE Nominee Directors or their representatives or lawyers already had a copy or knowledge of the same. The Company Secretary responded to these queries on June 18, saying that the "opinion had to be tabled at the Board meeting" but since the two directors were remotely participating in the meeting, the "Chairman instructed me to email the opinion to you and Dr. Anupam Khanna just before the meeting for your convenience". He further claimed that the IGE Group Nominee Directors did not have access to the legal opinion beforehand.
In his letter to SEBI, Gangwal has laid out this timeline of events and asked the regulator to direct InterGlobe Aviation to allow the EGM resolution to be placed in front of all the shareholders. He also sought direction to the company to amend its Articles of Association in line with SEBI's regulations. "I have vigorously attempted for almost a year to persuade the Company to shore up its governance standards, and all my attempts have been thwarted by the IGE Group," Gangwal informed Tyagi, explaining why he was finally constrained to seek SEBI's intervention. He further requested the regulator to "look into and, if thought fit, ask the company to make necessary changes to the unusual controlling rights" that are currently available to the IGE Group.
Courtesy these unusual rights, Bhatia enjoys greater control over the board and management. The IGE Group has the right to appoint key managerial personnel at IndiGo - the chairman, MD, CEO and president - apart from the right to nominate three non-independent directors, one of whom will be non-retiring. On the other hand, the RG Group has the right to nominate just one non-retiring, non-independent director, as per filings with the Registrar of Companies.
"The aviation industry in India has regrettably experienced a chequered and difficult financial history and, especially, in the context that these unusual controlling rights seem to be the basis for the various violations of law and governance at IndiGo," said Gangwal, calling the airline a "critical national asset". Against this backdrop, he believes it's time to take a fresh look at the unusual rights currently being enjoyed by Bhatia.
(Edited by Sushmita Choudhury Agarwal)