IndiGo promoters should have managed disagreements better, say analysts

Proxy firms and legal eagles are of the view that Indigo promoters Rahul Bhatia and Rakesh Gangwal could have managed the disagreements better with the help of the board. 

They point out that the aviation industry, which has already seen Air India struggling and Jet Airways ending up in insolvency tribunal, could have done without this problem.

IndiGo promoter Gangwal has sought market regulator Securities and Exchange Board of India’s (Sebi’s) intervention, alleging issues in related party transactions, and violations of governance regulations. He said that the powers vested with Bhatia shows that big listed firms are not adhering to corporate governance standards in the right spirit.

“This will have a negative impact on the company as from here it is impossible to go back to the same status. The question that who has given disproportionate power to one promoter should result in a larger debate in this case,” said J N Gupta, managing partner, Stakeholders Empowerment Services, a proxy advisory firm.

On Gangwal’s allegation that Bhatia has benefited from related party transactions, an expert says that this would put investors in a spot. 

“It is really unfortunate that it has come to this. It could end up destroying shareholder value. It looks like the discussions between the founders and their advisors haven’t been successful,” said Shriram Subramanian, managing director of corporate governance advisory firm InGovern Research Services. 

He added that it will leave investors wondering as to the nature and value of the related party transactions.

A proposal by one of the promoters to implement a code of conduct for related party transactions may independently be seen as a step in the right direction towards strengthening corporate governance standards, said experts. 

“Any such code of conduct should only have prospective application, unless the fiduciary duty of the various stakeholders, 

including independent directors, is in itself being questioned. The potential impact of such a corporate governance issue on previously entered contractual obligations is also likely to undergo judicial scrutiny,” said Sundeep Dudeja, partner, Luthra and Luthra Partners. 

“In such matters, the board should have gone by the general principle required by listed companies on corporate governance with respect to appointment of senior management. The nomination and remuneration committee of the board, headed by an independent director, is responsible for resolving such matters,” said R S Loona, managing partner, Alliance Law. 

Gupta said that the tone and tenor of the letter written by Gangwal is harsh and damaging. “It shows that he has been really upset about the governance practices in the company. In this case, no one knows the veracity but one thing is clear, that the board is also at fault. Somewhere, the board has failed to discharge its duties and proved once again that it runs on the whims and fancies of the promoters,” Gupta said. 

Other experts feel that, historically, airline companies in India have never set a good example of corporate governance. 

“The industry has witnessed a lot of issues in the past because of political influence and government regulations,” said Ravi Kini, managing partner, MV Kini & Company, a law firm. 

According to Loona, this issue shouldn’t have been allowed to be dragged to this extent and the board should have utilised its powers to address the dispute. 

The regulator will now see to the complaints made by both parties and whether the alleged violations sustain under the securities law provisions or if it’s just a clash between promoters over control.