The IndiGo Story: What Is The Feud Between Rakesh Gangwal and Rahul Bhatia

IndiGo's co-promoter Rakesh Gangwal on Friday resigned from the board of directors of parent company InterGlobe Aviation with immediate effect, according to an exchange filing.

In a letter to the IndiGo board, Gangwal said he intends to gradually reduce his stake in InterGlobe "over the next five years."

Gangwal's resignation came just a little over a month after he and the airline's other co-founder Rahul Bhatia called an extraordinary general meeting (EGM) on December 30 to scrap a clause in the company’s articles of association (AoA), which gives the two owners the right of first refusal over the acquisition of each other’s shares.

This would allow either side to sell or transfer shares to a third party without giving each other a notice. 

Gangwal had been locked in a battle over the running of the airline with Bhatia.

IndiGo is India's biggest airline with a 53.5 per cent market share in October 2021. Bhatia and his group companies control about 38 per cent of InterGlobe, while Gangwal and affiliates own around 37 per cent.

The Tussel Between Gangwal and Bhatia

The dispute between the co-founders started in 2019 when Gangwal wrote to the Prime Minister’s Office (PMO) and the Securities and Exchange Board of India (Sebi) accusing Bhatia of indulging in "questionable related-party transactions" between InterGlobe Aviation and Bhatia group entities.

Bhatia, too, wrote to Sebi countering Gangwal’s allegations.

Gangwal also flagged the unusual rights that give Bhatia control over the board and that have allegedly led to governance failures. Gangwal had alleged several irregularities in InterGlobe Aviation's related-party transactions.

Bhatia denied all the allegations and the IGE group said that there is absolutely no evidence regarding the questionable third-party transactions between IGE and IndiGo.

The two founders also differ over the strategy for IndiGo’s growth.

Bhatia had approached the London Court of International Arbitration (LCIA) to settle their differences after a resolution proposed by Gangwal in 2019 to amend the company’s Articles of Association was defeated by shareholders.

The LCIA had directed the parties to hold an EGM and had asked Gangwal and Bhatia to arrive at a consensus for a resolution to remove the Articles of Association that had restricted the transfer of shares.

The court, however, allowed Gangwal to deposit $50,000 payable to Bhatia and IGE (in connection with the defamation claim raised by Bhatia) with the HC Registry in compliance with the direction in the Award.

While Gangwal was directed to pay $25,000 each to Bhatia and the private company led by him as damages for defamation, the arbitration tribunal favoured Gangwal on the issue of restriction on the transfer of shares.

In October, Gangwal then moved the Delhi High Court to enforce the order before the 90-day period. The court, however, said that 90 days period for challenging the award is not over, and therefore, Bhatia can’t be made to act on the award. It also noted that Bhatia will prefer a challenge to the award.

IndiGo and Bhatia too clarified that they will be challenging the arbitral award.