NEW DELHI:
As a continuing response to Rakesh Gangwal’s baseless and fact free insidious allegations on corporate governance at InterGlobe Aviation Limited (“IndiGo/IGAL”), InterGlobe Enterprises, one of the promoters of IGAL, will continue to place facts (rather than smoke and mirrors) in public domain.
Much has been said by Gangwal on corporate governance at IndiGo. He labels as “unusual” certain features of the arrangement he entered in to with IGE at the time when IndiGo was founded and he came in as an “Investor”. Here is the context of how the relationship was established.
Rahul Bhatia and Gangwal – both being seasoned business persons (and certainly one of them with a reputation of being a super negotiator for deals worth billions of dollars) – signed a heavily negotiated Shareholders Agreement between IGE Group and RG Group to “reflect their agreement and understandings in relation to the governance, management and operation of IndiGo and stated their wish that the Agreement would “govern the relationship between them”. As is customary, the Agreement contained mutual rights and obligations of the parties.
Gangwal, though entitled to appoint a Director on the Board of IndiGo, right from the inception of his investment in 2006, chose not to join the Board or to appoint any other nominee. It was not until June 2015 (prior to the IPO) that Gangwal finally joined the Board. By 2015, IndiGo had established itself as the most successful airline ever in India.
It had matured into a great institution with apparently good corporate governance though without the benefit of Gangwal’s presence on the Board. 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.
Now that Gangwal has raised a much orchestrated controversy around corporate governance, one might ask the question: what are facts put out by him to support his allegation of “collapsing” corporate governance standards at IndiGo and his apprehension that IndiGo the pride of the nation, will go down the tubes unless something is done urgently to save it.
He says that nothing is wrong in a minority shareholder having influence and controlling rights “provided such influence is used judiciously and with prudence and is in the best interests of the company”. That is the standard he prescribes. In his grievances, he talks about rights of the IGE Group as a shareholder and promoter, but he fails to give even one instance where there has been any misuse or abuse of any such right.
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.
And this after he allegedly has been working on information provided by “whistle blowers” who apparently chose not to use the whistleblower mechanisms and procedures established by IndiGo and instead provided information to Gangwal.
Gangwal cites some instances which lead him to believe that the corporate governance at IndiGo has gone to the dogs. From the specific instances cited by him about lack of corporate governance, not one concerns IGE or any of its rights. For example:
(i) much has been said about the E&Y report and why it has not been disclosed. A bare reading of the Minutes of the March 4, 2019 Board Meeting will show that the new Chairman had sought the report to get a better understanding of the RPT issues.
At the meeting he summarized that while there was nothing wrong with the transactions themselves but identified the procedural irregularities that had been noticed; he then proceeded to suggest process improvements and following that the Board constituted an internal committee to examine the RPTs and make its recommendation; and the CEO accepted the responsibility for putting in place robust process for consideration and approval of RPTs; the Committee was given four months time to submit its recommendations.
Given the flow of deliberations at the meeting, no one asked for the report to be tabled and Gangwal agreed to the suggestions and offered to share a template of the process for dealing with on-going and future RPTs. And indeed just after the meeting he handed over a proposed approval process flow chart for RPTs. Even much prior to the four month period, substantial progress had been made in the matter, as also admitted by Gangwal himself, until he scuttled the process on May 28.
(ii) He further cites that the Board did not convene the EGM requisitioned by him. Legal opinion had been sought by IndiGo and basis that opinion Board declined to convene the EGM. This was not any abuse of the rights that IGE Group may have.
(iii) He has a grievance about nomination of Chairperson – he admits that the chairperson is independent but that the right to nominate will make the Chairperson non-independent. The relevant issue is whether the director who is being nominated as Chairperson is an “independent” director as defined in the regulations or not. So far the Company has had three independent directors (including the two serving independents).
Each time a name was proposed by a director for a potential appointee as an independent director and the Board unanimously (including Gangwal) approved the appointment. To make a point, Anupam Khanna was introduced to IndiGo by Gangwal and was welcomed as a suitable independent director who would add value to the Board. Dr. Khanna is Chairperson of the Nominations and Remuneration Committee (NRC) – which has unanimously approved the nominations of independent director and senior management including the Chief Executive. Now, Gangwal makes much of the fact that single names are proposed – he fails to understand that anyone proposing a name of a person is doing so with responsibility and any other director is free to dissent or make any alternate suggestion.
(iv) He misreads and misunderstands the revision of the NRC Policy implemented last year – that merely recognized and actualized the process for nomination of certain members of the senior management where IGE has a nominating role. But Gangwal does not say if any candidate nominated was not suitable or qualified person for that role or there was any abuse of the process.
Corporate governance is not about levelling baseless charges. It is about ensuring that the company’s interests as also those of other stakeholders are protected and not harmed. Gangwal fails to cite a single concrete example where any act or omission has resulted in any loss or damage to IndiGo. 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. Gangwal’s allegations about lack of corporate governance are much ado about nothing.
