IndiGo Promoter Feud: Rakesh Gangwal Seeks EGM To Amend Articles Of Association

Rakesh Gangwal, IndiGo co-founder who publicly bickered with his partner Rahul Bhatia last year, wants to scrap provisions that require the airline's controlling shareholders to seek permission from each other for buying or selling shares.

The board of InterGlobe Aviation Ltd., the operator of IndiGo, has called an extraordinary general meeting on Jan. 29 to amend the Articles of Association, according to an exchange filing. The request came from Gangwal, his wife Shobha Gangwal and the their Chinkerpoo Family Trust—36.64 percent owners of the airline—on Dec. 24.

Gangwal wants changes in the articles to remove the provisions of the shareholder agreement that lapsed in November. But the company, in the statement, said it has legal opinion that the agreement and the articles do not impose an obligation on the board and the management to approve the proposed amendments.

That can potentially trigger another round of bickering months after Gangwal first alleged corporate governance transgressions by Bhatia's privately owned companies that provided services to IndiGo. The two, however, called a truce with Gangwal supporting expansion of board sought by Bhatia. But Bhatia later filed arbitration proceedings regarding Gangwal demand for an EGM regarding related-party transactions and other issues in the shareholder agreement.

Articles of Association In Question

According to IndiGo's statement, Gangwal now seeks to amend the articles regarding the provisions of the shareholder agreement that automatically expired on the fourth anniversary of the initial public offer of the company—Nov. 10, 2019. These include:

• Right to first refusal: Rahul Bhatia's InterGlobe Enterprises and Rakesh Gangwal Group have the sole discretion to purchase shares from each other before offering it to a third party. The non-transferring shareholder has the right to acquire such number of shares so that it does not trigger an open offer under the takeover regulations.
• Tag-along rights: Either of the promoters will have tag-along rights in case any one of them transfers shares to a third party. The third party will have to acquire at least 50 percent of the stake of the non-transferring promoter.
• Either of the promoter shareholder will have to inform the other in writing 45 days in advance the number of shares being sold, the price and the name of buyer.
• Shares can't be transferred without the written consent of the non-transferring shareholder…

a. to a competitor in an off-market transaction except if it is undertaken on the exchange platform.

b. to any person if such proposed transfer requires making an open offer under the takeover regulations.

• The right to first refusal and tag-along rights will not apply if the shares are transferred by the shareholder to any of its affiliate.
• Each of the promoter shareholder agrees to a standstill in shareholding and will not acquire any additional equity shares, voting rights or other securities of the company. Both are entitled to acquire pro-rata equity share based on their respective shareholding in the company as per permissible creeping acquisition limits.
• Each of the two parties will have to provide shareholding details held by them or persons acting in concert.

This is the second time that Gangwal has sought an EGM to amend articles of association. In a July letter, Gangwal had sought to amend the articles of association on other issues. He had raised related-party transactions and corporate governance issues and sought an EGM, which the board had then denied through a split vote.

He had written, “The unusual rights survive even after this coming November when most of the provisions of the current shareholders agreement expire, since, these rights remain embedded in the articles of association of IndiGo and will continue to survive unless the articles are amended by a vote of shareholders holding more than 75% shares”.

These rights are:

• right to appoint 3 out of 6 directors of IndiGo.
• “The chairman of the Board shall be appointed on the nomination of the IGE Group ...”
• right to nominate and appoint the managing director.
• right to nominate and appoint the CEO.
• right to nominate and appoint the president.
• a voting arrangement that requires me and my affiliates to vote alongside the Interglobe Enterprises Group on the appointment of directors.

This matter is under arbitration.