IndiGo Airline's Promoters Can Soon Sell Their Shares Without Restrictions

In a bid to implement the arbitral award in the feud between its two promoters, InterGlobe Aviation Ltd., the parent of IndiGo Airlines, has issued a notice saying an extraordinary general meeting will be held on Dec. 30, 2021. The agenda of the EGM is to remove share transfer restriction articles from the company's articles of association, as detailed in a filing with stock exchanges.

The EGM has been requisitioned by both promoters, Rahul Bhatia and Rakesh Gangwal, who between them hold 74.44% of the company. It's the culmination of a two-year old legal battle between the two on issues ranging from share transfer restrictions to related party transactions and allegations by Gangwal of poor governance practices at the airline.

Bhatia filed for international arbitration and the award issued in September 2021 directed Gangwal to pay Bhatia $50,000 for a claim raised by him in the arbitration and allowed Gangwal's counterclaim seeking removal of transfer restrictions on the shareholding of the two founders.

The arbitral award directed Bhatia and Gangwal to jointly make a requisition to call and hold an EGM to vote on a resolution to remove the transfer restriction articles.

Gangwal had approached the Delhi High Court in October claiming in his petition that his efforts to implement directions in the arbitral award of Sept. 23 had not received any response from Bhatia. However, the court had refused to intervene in the matter.

The Share Transfer Restrictions

Before it went public, InterGlobe Aviation's articles of association included restrictions on the transfer of shares by the two promoters. These include right of first refusal, tag along rights and provisions governing on- and off-market transfers. The articles also restrain the promoters from selling shares resulting in change in control or to any competitor without permission from the other. They also prohibit acquisition of shares by either promoter such that it would trigger an open offer.

These specific articles and restrictions are being sought to be deleted at the EGM by shareholder vote. They were to automatically expire in November 2019, four years after the company listed on the stock exchanges. Gangwal sought an EGM then to vote on their removal but the special resolution failed as Bhatia voted against it.

This time, as both have jointly requisitioned the EGM, and hence will vote in favour of the resolution to amend the articles, it's sure to pass.

Once the restrictions on promoter shareholding are lifted, either promoter will be able to sell their shares more freely, and to anyone.

In January 2020, in the thick of the dispute between the two promoters, there were indications that foreign airlines such as Qatar Airways and Delta Airlines may be interested in India's top carrier.