Gangwal writes 49-page letter to Sebi charging Bhatia with breaches in corporate governance
The public spat between Rahul Bhatia and Rakesh Gangwal, co-promoters of Interglobe Aviation, turned ugly on Tuesday with Gangwal reaching out to the regulator with a string of charges against Bhatia. The Securities and Exchange Board of India (Sebi) has asked the company which runs the Indigo airline to respond by July 19.
In a 49-page letter to Sebi that charged Bhatia with multiple violations, Gangwal alleged Bhatia had carried out related-party transactions (RPT) without the approval of the audit committee, violated corporate governance regulations and also breached the code of conduct for directors and senior management. He also said board decisions and resolutions on critical matters had been implemented “without basic governance, protocols and laws being followed..” Gangwal claimed Bhatia was significantly diminishing and usurping the authority vested by Sebi to the nomination and remuneration committee.
For his part, in a June 12 letter Bhatia alleged Gangwal’s objective was to “dilute and diminish the controlling rights of the IGE Group” and to relieve itself from its obligations of the shareholders agreement and articles of association (AoA) which ensure implementation and enforcement of the IGE Group’s controlling rights”. Bhatia said the red herring issue of RPTs was no more than a publicity seeking device to attempt to tarnish the reputation of the IGE Group and to position the RG Group as a saviour of the company against alleged pillaging by the IGE Group.
The shareholder agreement between Gangwal and Bhatia, who hold 36.69% and 37.9%, respectively, expires in October but the articles of association extend beyond that.
Given the serious nature of the charges against Bhatia, legal expert HP Ranina said the matter could soon end up in the MCA.
“These are RPTs and are covered under the Companies Act and the audit committee and independent directors would be questioned,” Ranina said on a television channel.
Corporate experts pointed out that Gangwal should have spoken up earlier and questioned the role of the board which had allowed the situation to deteriorate to this level. “The board members are also responsible, if corporate governance practices have been compromised with,” one expert noted.
Another corporate expert noted that “people should not be embedded in the Articles and the stock exchanges should ensure this before a company is listed”.
M Damodaran, chairman of the InterGlobe Aviation board, had attempted to get Bhatia and Gangwal to put aside their differences, but with Gangwal reaching out to the regulator the disagreements seem to have become irreconcilable.
In a television interview on June 24, Ronojoy Dutta, CEO, InterGlobe Aviation, had indicated it was an administrative issue that would have has no impact on the management or the airline. “We hope to resolve it soon. It has to do with a related party transaction and they are trying to see whether these need to be changed meaningfully,” Dutta had said.
Bhatia had written in the June 12 letter: “So,here is a man who (i)took full advantage of the situation and the opportunity offered to him 14 years ago, when he was generously allotted 50% equity; (ii) did notmind that the IGE Group was taking the entire economic risk, which at peak exposure ..was in excess of INR 1,100 crores (almost six-fold the IGE Group’s contractual obligation of INR 200 crores in the understanding with Mr.Gangwal); (iii) Happily agreed to the fundamental proposition that the IGE Group will have control; (iv) year after year, signed and approved annual accounts without raising any objections……(ix) now claims to be a guardian of corporate governance.”