Nation can ill afford IndiGo faltering: Rakesh Gangwal, IndiGo co-founder

MUMBAI: Rakesh Gangwal, the billionaire co-founder of IndiGo and airline industry veteran, is determined to root out what he regards as poor corporate governance at parent InterGlobe Aviation, regardless of how much this may cost. He’s doing it for the greater good. “The nation can ill afford IndiGo faltering. IndiGo is now very much intertwined with the economic well-being of the country,” he told ET in an interview. “Look at the nation — how many companies have got into trouble because of lax adherence to corporate governance and weak board oversight?"
Although his differences with co-founder Rahul Bhatia weren’t a secret, Gangwal’s complaint to the Securities and Exchange Board of India (Sebi) still came as a bombshell for investors — the stock fell as much as 17.5% on Wednesday, ending at Rs 1,392.00, down 11%. The Gangwal family holds a 36.68% stake while the Bhatia family has 38.26%. Bhatia’s IGE Group denied the accusations made by Gangwal, saying none of the group’s entities had exploited relatedparty transactions and had in fact treated IndiGo more favourably than other customers.

Gangwal, who spoke to ET on Tuesday night, anticipated the damage his complaint would do to the stock.

“The tradeoff is, in the short term, somebody like me will take personal attacks and some financial pain,” he said. “And on the other side, in my mind, if these things are not corrected today, down the road we could have a situation like what happened with some other airlines and other companies in India. In the long term, IndiGo will emerge much stronger with good governance.” InterGlobe Aviation shed Rs 6,462 crore of its market capitalisation to end at Rs 53,766 crore on Wednesday. Better the pain came now rather than later, he said.

“Yes, there is the financial part — to a certain extent I will be impacted and, regrettably, so will other minority shareholders,” Gangwal said. “But the fact that IndiGo could five or 10 years from now, falter — that would pain me.”

The IndiGo cofounder said a company cannot in the long term survive even if it has a good business model but does not have good corporate governance. “Big companies have failed due to poor corporate governance and weak boards,” he told ET. “The regulators need to address this issue. There has been more than one wakeup call in India and errant companies should not be given a free pass.”

Poor corporate governance is the reason for many Indian companies failing, he said, explaining why he decided to approach the regulator and the Prime Minister’s Office. “I am very clear on these types of issues,” Gangwal said. “And I keep telling myself — when something is wrong, fix it, don’t run away. Because if you don’t do it, who will? So, that’s what is going on.”



The IndiGo quarrel has blown up just as it’s poised to take full advantage of the grounding of Jet Airways, currently undergoing bankruptcy resolution after running out of cash to stay afloat. Jet Airways founder Naresh Goyal is under investigation over allegations of fraud. Gangwal referred to this broader corporate context, with promoters being forced to reckon with the fruits of bad business practice or wrongdoing. The close ties between Bhatia and Gangwal were a key part of the IndiGo narrative at the time of the initial public offer in 2015. Bhatia typically kept a low profile while Gangwal ran a tigh ship and leveraged his bargaining skills when placing large plane orders, one of the key reasons for the airline’s success.

To be sure, some question how a tough negotiator could have signed up to an apparently one-sided shareholder’s agreement. This gives Bhatia’s IGE Group the right to appoint the managing director, president and CEO. The current CEO of InterGlobe is Ronojoy Dutta, appointed by the Bhatia group, although he’s a long-time associate of Gangwal as well. Both have occupied top jobs in US aviation at some time or the other during their careers before IndiGo.

The differences between the two sides are focused on related party transactions. While InterGlobe has said these are minuscule relative to revenue, Gangwal’s side says they are significant and merit action. Bhatia said the related party transactions were a “red herring” and that there hadn’t been any objections raised against them in the past 13 years. Gangwal wanted to loosen the control of IGE Group over the airline, Bhatia has said in one of his communications.

The IGE Group said in its release on Wednesday that the related party transactions had been disclosed at the time of the IPO in 2015 and were in the public domain. After the IPO, many of the RPTs had ceased to exist while others have been renewed on an arm’s length basis as part of the normal course of business.

“The IGE Group has ensured that no entity of the group should take any advantage under RPTs. Without exception, IndiGo has received more favourable treatment from the IGE Group entities as compared to their other customers,” the IGE Group said. “The materiality of the transactions for IGAL (InterGlobe Aviation Ltd) is not significant — it is only 0.53% of IGAL’s consolidated turnover for FY 2018-19.”

Gangwal said the regulator should examine the EY report on related party transactions that had been commissioned by the audit committee chairman. “I hope Sebi looks into the EY report which has not been shared with the full audit committee and the full board,” he said. “What the (EY) report supposedly says and what has now been admitted by the company are at odds on many issues and certainly arise above just socalled ‘procedural irregularities’. This report is being used to claim that there are no real problems with related party transactions at IndiGo.”