'Much ado about nothing,' says Rahul Bhatia's IGE on Gangwal's allegations

Terming IndiGo Co-Founder Rakesh Gangwal's allegations of lack of corporate governance as 'much ado about nothing,' Rahul Bhatia's InterGlobe Enterprises (IGE) July 12 hit back saying the "Paan ki dukaan has apparently done well and continues to do well; it is financially sound; it is well run and managed by a competent set of managers."

The ​statement was specifically in response to Gangwal's earlier statement that even a 'paan ki dukaan' would have handled corporate governance with "more grace."

The two founders are locked in a public spat over the balance of power in the country's largest airline. In a statement released earlier this week, Gangwal had questioned IndiGo's corporate governance on related party transactions with IGE.

InterGlobe Aviation, part of the IGE Group, is the holding company of IndiGo.

Bhatia's IGE though had contested the allegation and said the transactions are a fraction of the airline's revenue. 

Calling Gangwal's allegations 'facts free," IGE in its statement on Friday said the shareholders' agreement between IGE and Gangwal's RG Group were heavily negotiated when the airline was founded in 2005.

The terms, the statement added, were renegotiated when the airline for an IPO in 2015.  "As a precursor to the IPO, the Shareholders Agreement was re-negotiated, and heavily re-negotiated, and amended twice to comply with regulatory requirements. Disclosures were made in the IPO prospectus that IndiGo would remain a promoter controlled company and the arrangements, as between the two promoters, were made public," said the statement.

IGE added that Gangwal has "failed to give even one instance of misuse of rights."

It said: "Has there been any stripping of assets or profits? Has there been any misfeasance or fraud? While he emits volumes of hot air about RPTs, he ends up giving one example of what he believes demonstrates that there may have been something which did not meet arm’s length criteria – and that example is factually wrong. "

The statement then goes into detail rebutting three specific allegations that Gangwal had labelled.

On the E&Y report that looked into the related party transactions process in IndiGo, Gangwal had questioned the lack of steps taken to address the report. But IGE said IndiGo Chairman - former SEBI chief M Damodaran - hadn't found anything wrong, and later constituted an internal committee to look into procedural irregularities. Though the committee was given four months to submit the report, IGE alleged that Gangwal had 'scuttled the process.

On Gangwal's charge that the Board didn't convene the EGM, IGE said legal opinion had advised against such a step.

Third, Gangwal had questioned IGE's right to nominate IndiGo's chairman. Taking exception to the charge, IGE contended that all the procedures were being followed in doing so.

In response to questions sent by Moneycontrol, an IGE spokesperson issued a statement which said,

“The sole example cited by Mr. Gangwal in relation to the related party transactions in his letter pertains to IndiGo's primary office space in Gurgaon, which has over the years been rented from IGE Group entities.

The example cited by Mr. Gangwal is factually incorrect since all lease agreements executed by IGE Group, including the lease of IndiGo's primary office space in Global Business Park, Gurgaon, are long term in nature and the rentals of these spaces have been benchmarked to the market rents prevailing at the time. Several of the terms and conditions of these leases have been more favourable to IndiGo than market practice – for example, for leases executed before 2019, there is no (or lesser) security deposit; no lock-in period; favourable termination provisions; lower rent escalation; free signage; stamp duty and registration charges equally borne between lessor and lessee (normally entirely borne by the lessee).

Specifically for the lease of Global Business Park, Gurgaon which was recently renewed, the rental was actually revised downwards for bona fide reasons including benchmarking with prevailing market rentals and IndiGo provided the security deposit and agreed to a longer termination period and a lock-in of three years. The benchmarking for determining the rent was based on comparative rentals in the relevant market. All related party transactions (including the above lease) have been executed between IndiGo and the IGE Group on an arms’ length basis and in the ordinary course of business.”

Gangwal, meanwhile, has approached the Prime Minister Office to intervene in the matter.

Also, SEBI has asked IGE to reply to Gangwal's letter by July 19.