IndiGo shareholders clear way for resolving Gangwal-Bhatia feud by approving a change in clauses

The shareholders of InterGlobe Aviation, which operates domestic airline IndiGo, on Thursday, December 30 approved a resolution seeking an amendment to the Articles of Association (AoA) of the company, some of which give one founder the first right to purchase the other’s shares in the company if the latter decides to sell.

InterGlobe’s founders Rahul Bhatia and Rakesh Gangwal have been locked in a feud over several articles in the AoA since 2019. An amendment will lift several barriers to any sale of shares by a founder to a third party. The founders own 74.44% of InterGlobe.

Rakesh Gangwal (Left) and Rahul Bhatia (Right) [Image Courtesy – Bloomberg Quint)

Chairman M Damodaran informed shareholders that the extraordinary general meeting (EGM) had been called on receipt of a joint requisition from the promoters. Later, a filing said 99.99% of shareholders voted in favour of the resolution. The resolution also indicates that the two partners have reached an understanding of the matter.

In 2020, InterGlobe’s shareholders had rejected a similar proposal by Gangwal at an EGM. Gangwal and family together own 36.61% of the airline. Based on the airline’s market capitalisation at the end of Thursday, their shares were worth INR 27,899 crore.

IndiGo’s chief executive officer Ronojoy Dutta assured shareholders of the airline that the company will emerge stronger after facing nearly two years of uncertainty due to the COVID-19 pandemic.

“Domestic traffic rebounded strongly in November and December. Omicron has caused future bookings to soften, but these are still above the September levels. While international capacity is restricted, bubble flights to international destinations are performing well.

During the past two years, the focus has been building the domestic network, returning inefficient planes at a rate of 45 per year and replacing them with efficient Airbus A320neo aircraft, improving levels of customer service, and growing our charter and cargo businesses. Despite the low level of revenue generation over the past two years, we can confidently state that we are emerging from the Covid-19 crisis structurally stronger as an airline.”

Ronojoy Dutta, CEO, IndiGo

Dutta listed various steps IndiGo took since the pandemic broke out and said the airline was structurally stronger now than it was in March 2020. He said IndiGo was on the recovery path if there was no third wave.

According to the IndiGo CEO, the airline went through turbulent times, incurred significant losses, and took debt to shore up its balance sheet. “Repairing the balance sheet is an urgent task,” he said.

Speaking at the extraordinary-general meeting (EGM) of InterGlobe Aviation, Dutta said that while at the moment, flight bookings have taken a hit given the outbreak of the Omicron variant of COVID-19, the aviation industry in India is still showing strong signs of recovery and any fall in bookings is likely to be temporary.

If the resolution is accepted, it would end the dispute between the owners Bhatia and Gangwal, who collectively hold 74.44% of the paid-up equity share capital and have been at loggerheads for more than two years now.

The resolution is expected to pass smoothly, given that both the promoters have jointly called the meeting. Once passed, it would allow either side to sell or transfer shares to a third party, without giving each other notice.

The shareholders in the EGM were required to vote on the resolution and the result of the EGM voting that took place via video conferencing would be uploaded within two working days.

The legal battle between the promoters began on July 8, 2019, when Gangwal wrote to the Securities and Exchange Board of India (Sebi), the Prime Minister’s Office and the finance ministry, seeking intervention on various corporate governance issues and the Bhatia Group’s control of the airline.

Gangwal had sought amendments to the AoA to remove rights of Bhatia’s IGE Group on the airline, and raised past related-party transactions, non-independence of the current chairman, and refusal to hold an EGM when he had requested, among other issues.

Bhatia later moved the London Court of International Arbitration (LCIA) against Gangwal. The LCIA in September said the AoA be amended and that the clause regarding the RoFR is done away with. It had given them 90 days to implement its directions. Gangwal had then moved the Delhi high court seeking directions for calling an EGM. However, the court did not allow the plea.

The particular clause in AoA says if a shareholder proposes to sell shares outside the stock exchange, he will have to first notify the other shareholder disclosing the number of shares, the proposed price, the identity of the purchaser, the proposed closing date for the transfer apart from any other material terms of the agreement between the seller and the buyer.